Question

# Desert Products is a small pottery manufacturer using direct labor hours as the single indirect-cost rate...

Desert Products is a small pottery manufacturer using direct labor hours as the single indirect-cost rate to apply manufacturing overhead costs to the various jobs contracted during the year. The following estimated and end of year actual information is provided:

 Estimated at Beginning of Year Actual at End of Year Direct Materials \$2,000,000 \$1,950,000 Direct Labor \$1,450,000 \$1,370,000 Manufacturing overhead costs \$2,465,000 \$2,397,000 Direct labor hours 145,000 DLH’s 142,000 DLH’s

1. Compute Desert’s overhead application rate using normal costing:
2. Compute Desert’s over/under applied overhead at the end of the year?
3. Is overhead over or under applied?
4. Assume Desert completed Job #626 which used \$45,000 of direct materials,\$42,000 of direct labor and 4,200 DLH’s. What is the total cost of Job #626?
5. If Job #626 consists of 2,000 units, what is the cost per unit?

Overhead rate = \$2465000/145000 = \$17 per DLH

Overhead applied = 142000 x \$17 = \$2414000
Over (under) applied overhead = \$2414000-2397000 = \$17000

 Direct Material \$       45,000 Direct Labor \$       42,000 Overhead \$       71,400 Total Cost \$   1,58,400 Units 2000 Cost per unit \$         79.20

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