Question

Estimated cost and operating data for the forthcoming period for three companies are given below:

                                                       Company A                   Company B                  Company C

Direct labor hours                                   12,000                          15,000                          20,000

Manufacturing overhead                        $90,000                      $120,000                      $150,000

Machine hours                                        20,000                          20,000                          25,000

Direct labor cost                                    $60,000                       $ 75,000                      $100,000

Predetermined OH                          Direct Labor                  Direct Labor                       Machine

rates are based on                                  hours                              cost                            hours

Required:

1.         Compute the predetermined overhead rate to be used in the forthcoming period for each company.

2.         Assume for Company B that $80,000 of direct labor cost actually is incurred.  How much overhead will be applied to work in process?

3.         Assume for Company C that 30,000 machine hours are actually worked during the forthcoming period.  How much overhead will be applied to work in process?  If actual overhead costs total $175,000 will overhead be over- or under-applied?  By how much?

Answer 1

1.         Compute the predetermined overhead rate to be used in the forthcoming period for each company.

	Company A	Company B	Company C
Estimated Manufacturing overhead	90000	120000	150000
Estimated allocation Base	12000 hr	$75000	25000 hr
Overhead rate	7.50 per DLH	160% of direct labor cost	$6 per machine hour

2) Overhead applied to work in process of company B = 80000*160% = $128000

3) Applied overhead company C = 30000*6 = $180000

Actual overhead = $175000

Over applied overhead = 180000-175000 = $5000