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

YOU MUST SHOW YOUR COMPUTATIONS TO RECEIVE CREDIT:

  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?

Homework Answers

Answer #1

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

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

Overhead is over applied

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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