Southern Rim Parts estimates its manufacturing overhead to be $416,000 and its direct labor costs to be $1,040,000 for year 1. The first three jobs that Southern Rim worked on had actual direct labor costs of $63,000 for Job 301, $88,000 for Job 302, and $165,000 for Job 303. For the year, actual manufacturing overhead was $409,000 and total direct labor cost was $836,000. Manufacturing overhead is applied to jobs on the basis of direct labor costs using predetermined rates. Required: a. How much overhead was assigned to each of the three jobs, 301, 302, and 303? b. What was the over- or underapplied manufacturing overhead for year 1?
Overhead rate
Overhead rate = Estimated manufacturing overheads / Direct labor cost * 100 |
Overhead rate = $416,000 / $1,040,000 * 100 = 40% of direct labor cost
Requirement a:
Overheads assigned
Jobs | Computation | $ |
Job 301 | $63,000 * 40% | 25,200 |
Job 302 | $88,000 * 40% | 35,200 |
Job 303 | $165,000 * 40% | 66,000 |
Requirement b:
Under or overapplied manufacturing overheads
Applied manufacturing overheads = $836,000 * 40% = $334,400
Actual manufacturing overheads = $409,000
Underapplied manufacturing overheads = $334,400 - $409,000 = $74,600 |
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