Question

Sylvan Company uses activity-based costing to determine product costs for external finaleial reports. Some of the entries have been completed to the manufacturing overhead account for the current year, as shown by entry (a) below: Manufacturing Overhead (a) 2,401,000 Required: 1. What does entry (a) represent? O Actual manufacturing overhead cost incurred O Overhead applied O Machine-hours 2. At the beginning of the year, the company made the following estimates of cost and activity for its five activity cost pools: Estimated Overhead Cost $585,000 40,770 363,000 450,000 653,670 Expected Activity 39,000 DLHS 1,510 orders 402 part types 2,000 boards 80,700 MHs Activity Measure Direct labour-hours Number of orders Activity Cost Pool Labour related Purchase orders Parts management Board etching General factory Number of part types Number of boards Machine-hours

Answer 1

Solution 1:

Debit to manufacturing Overhead account represent actual overhead incurred.

Therefore entry (a) on debit side represents "Actual manufacturing overhead costs incurred".

Hence first option is correct.

Solution 2:

Computation of Activity rate
Activity Cost Pool	Overhead cost	Expected Activity	Activity rate
Labor related	$5,85,000	39000	$15.0	Per direct labor hour
Purchase orders	$40,770	1510	$27.0	per order
parts management	$3,63,000	402	$903.0	per part type
Board etching	$4,50,000	2000	$225.0	per board
General Factory	$6,53,670	80700	$8.1	per machine hour

Solution 3:

Activity Cost Pool	Activity Rate	Actual activity	Overhead Applied
Labor related	$15.0	40000	$6,00,000
Purchase orders	$27.0	1280	$34,560
parts management	$903.0	417	$3,76,551
Board etching	$225.0	2110	$4,74,750
General Factory	$8.1	81700	$6,61,770
Total overhead assigned			$21,47,631

Solution 4:

Underapplied overhead = $2401000 - $2147631 = $253,369