Question

1. Somerset Products uses a job costing system with two direct cost categories and one manufacturing overhead cost pool. Somerset allocates manufacturing overhead costs using direct manufacturing labor costs.

The following information pertains to the year 2018:

	Budget	Actual
Direct material costs	$2,150,000	$2,075,000
Direct manufacturing labor costs	$1,750,000	$1,690,000
Manufacturing overhead costs	$3,062,500	$3,211,000

The following information pertains to Job GWH undertaken in May 2018:

	Budget	Actual
Direct materials used	$35,000	$35,000
Direct manufacturing labor costs	$25,000	$30,000

a. Compute the cost of Job GWH using normal costing.

b. For the year 2018, compute the under- or overallocated manufacturing overhead under normal costing. (indicate the amount and if it is under- or overallocated)

Answer 1

	Manufacturing overhead rate = budgeted overhead / Budgeted direct labor cost
				=3,062,500/1,750,000
				175%	of direct labor cost
answer a)	Compute the cost of Job GWH using normal costing
		Direct materials used			35,000
		Direct manufacturing labor costs			30000
		Manufacturing overhead = 30000*175%			52500
		Total cos =			117,500
answer b)		compute the under- or over allocated manufacturing overhead under normal costing
	i	Applied manufacturing overhead cost = 1,690,000*175%				2,957,500
	ii	Actual manufacturing overhead cost =				3,211,000
	iii=ii-i	Overhead under applied =				253,500