Question

E2-18 (Algo) Calculating Actual and Applied Manufacturing Overhead Costs and Over- or Underapplied Overhead Costs [LO 2-3, 2-4, 2-5, 2-6]

Verizox Company uses a job order cost system with manufacturing overhead applied to products based on direct labor hours. At the beginning of the most recent year, the company estimated its manufacturing overhead cost at $193,000. Estimated direct labor cost was $478,640 for 19,300 hours.

Actual costs for the most recent month are summarized here:

Item Description	Total Cost
Direct labor (1,930 hours)	$	47,865
Indirect costs
Indirect labor		2,540
Indirect materials		3,450
Factory rent		3,210
Factory supervision		4,840
Factory depreciation		5,600
Factory janitorial work		1,280
Factory insurance		1,790
General and administrative salaries		4,240
Selling expenses		5,340

Required:
1. Calculate the predetermined overhead rate.

2. Calculate the amount of applied manufacturing overhead.

3. Calculate actual manufacturing overhead costs.

4. Compute over- or underapplied overhead.

Answer 1

1.

Estimated manufacturing overhead = $193,000

Estimated direct labor hours = 19,300

Predetermined overhead rate = Estimated manufacturing overhead / Estimated direct labor hours

= 193,000/19,300

= $10 per direct labor hours

2.

Applied manufacturing overhead = Actual direct labor hours x Predetermined overhead rate

= 1,930 x 10

=$19,300

3.

Actual manufacturing cost = $22,710

Indirect labor		2,540
Indirect materials		3,450
Factory rent		3,210
Factory supervision		4,840
Factory depreciation		5,600
Factory janitorial work		1,280
Factory insurance		1,790
Actual manufacturing cost		22,710

4.

Under applied manufacturing overhead = Actual manufacturing cost - Applied manufacturing overhead

= 22,710-19,300

= $3,410

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