Question

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 manufacturing overhead: 139,080

estimated machine hours: 3,800

Actual Manufacturing Overhead: 137,000

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

Answer 1

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.