Question

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 $173,810. Estimated direct labor cost was $441,210 for 19,100 hours. Actual costs for the most recent month are summarized here: Total Cost $44,122 Item Description Direct labor (1,910 hours) Indirect costs Indirect labor Indirect materials Factory rent Factory supervision Factory depreciation Factory janitorial work Factory insurance General and administrative salaries Selling expenses 2,500 3,440 3,370 4,820 5,700 1,150 1.890 4,270 5,460 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)	Calculate the predetermined overhead rate :
	Predetermined overhead rate = Estimated manufacturing overhead cost / Estimated direct labor hours
	Predetermined overhead rate = $ 173,810 / 19,100 hours
	Predetermined overhead rate = $ 9.10 per hour
2)	Calculate the amount of applied manufacturing overhead :
	Applied manufacturing overhead = predetermined overhead rate * actual direct labor hours
	Applied manufacturing overhead = $ 9.10 per hour * 1,910 hours
	Applied manufacturing overhead = $ 17,381
3)	Calculate the actual manufacturing overhead costs :
	Actual manufacturing overhead costs :
	indirect labor	$ 2,500
	indirect materials	$ 3,440
	factory rent	$ 3,370
	factory supervision	$ 4,820
	factory depreciation	$ 5,700
	factory janitorial work	$ 1,150
	factory insurance	$ 1,890
	Total Actual manufacturing overhead costs	$ 22,870
4)	Compute the over or under applied overhead :
	actual manufacturing overhead ($ 22,870) is greater than the applied manufacturing overhead
	($ 17,381 ) so, this is under applied overhead
	Actual manufacturing overhead - Applied manufacturing overhead= Under applied overhead
	$ 22,870 - $ 17,381 = $ 5,489
	so, under applied overhead = $ 5,489