Question

# Brickner  and Velez Corporation, which applies manufacturing overhead on the basis of machine-hours, has provided the following...

Brickner  and Velez Corporation, which applies manufacturing overhead on the basis of machine-hours, has provided the following data for its most recent year of operations.

estimated machine hours: 3,800

Actual Machine Hours: 3,780

The estimates of the manufacturing overhead and of machine-hours were made at the beginning of the year for the purpose of computing the company's predetermined overhead rate for the year.

What is the Predetermined OH rate?_____________

If the Lezcano Job contained 30 Machine hours, direct labor cost of \$1,500 and direct materials cost of \$800; what is the total cost of the Job______________

The applied OH for the year would be:_________________

The Overapplied or Underapplied OH would be:_________________

If the company closed under or over applied OH to cost of goods sold, work in process and finished goods – how much higher or lower would income be than if they just closed it out to cost of goods sold only? (Note: They would use the ending balance in the three accounts in order to prorate any discrepancy between the accounts. Those initial balances are: COGS: \$500,000, WIP: \$400,000, FG: \$100,000)

Income would be \$______________ (Higher  / Lower ) if we allocate our under or overapplied OH rather than closing it solely to COGS

Solution 1:

Predetermined OH rate = Estimated manufacturing overhead / estimated machine hours = \$139080/ 3800 = \$36.60 per machine hour

Solution 2:

Total cost of the Job = Direct material + direct labor + Applied overhead = \$800 + \$1500 + (30*\$36.60) = \$3,398

Solution 3:

Applied OH for the year = Predetermined OH rate* Actual Machine Hours = \$36.60* 3780 = \$138,348

Solution 4:

Overapplied or Underapplied OH = Applied OH for the year - Actual Manufacturing Overhead

= \$138348 - \$137000 = \$1,348 Overapplied

Solution 5:

Allocation of Overapplied overhead to Cost of Goods sold = \$1348 *500,000/1,000,000 = \$674

Higher or lower would income be than if they just closed it out to cost of goods sold only = \$1348 - \$674 = \$674 (Lower)

Therefore,

Income would be \$674 Lower if we allocate our under or overapplied OH rather than closing it solely to COGS.

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