Question

Agassi Company uses a job order cost system in each of its three manufacturing departments, Manufacturing overhead is applied to jobs on the basis of direct labor cost in Department D, direct labor hours in Department E, and machine hours in Department K. In establishing the predetermined overhead rates for 2020, the following estimates were made for the year. Department Manufacturing overhead Direct labor costs Direct labor hours Machine hours $990,000 $1,237,500 150,000 600,000 $1,750,000 $1,875,000 125,000 750,000 $1,080,000 $675,000 60,000 120,000 During January, the job cost sheets showed the following costs and production data. Department D Direct materials used Direct labor costs Manufacturing overhead incurred Direct labor hours Machine hours $210,000 $180,000 $148,500 12,000 51,000 $189,000 $165,000 $168,000 16,500 67,500 $117,000 $56,250 $118,500 5,250 10,410

Answer 1

Required 1 :

Compute the Predetermined Overhead rate for each department :

Overhead rate
Department D	$ 0.80 Direct labor cost
Department E	$ 14 per direct labor hour
Department F	$ 9 per machine hour

EXPLANATION :

	Department D	Department E	Department F
Basis for application of manufacturing overhead	Direct labor cost	Direct labor hours	Machine hours
Budgeted manufacturing overhead	$ 990,000	$ 1,750,000	$ 1,080,000
Basis for application of overhead	$ 1,237,500 Direct	125,000 Direct labor	120,000 machine
	labor cost	hours	hours
Overhead rate	$ 0.80 Direct labor cost	$ 14 per direct labor hour	$ 9 per machine hour
{Budgeted manufacturing overhead/ Basis for	{$990,000/$1,237,500}	{$1,750,000/125,000}	{$1,080,000/120,000}
Allocation }

Required 2 :

Compute the total manufacturing costs assigned to jobs in January in each department :

Manufacturing Costs
Department D	$ 534,000
Department E	$ 585,000
Department F	$ 266,940

EXPLANATION :

	Department D	Department E	Department F
Direct materials used	$ 210,000	$ 189,000	$ 117,000
Direct labor costs	$ 180,000	$ 165,000	$ 56,250
Applied manufacturing overhead
Department D {$180,000 Direct labor cost * 0.80 }	$ 144,000
Department E { 16,500 direct labor hours * $14 }		$ 231,000
Department F {10,410 machine hours * $ 9 }			$ 93,690
Total Manufacturing Costs	$ 534,000	$ 585,000	$ 266,940

Required 3 :

Calculate of under or over applied overhead for each department at January 31 :

Manufacturing Overhead
Department D	$ 4.500 (Under Applied)
Department E	$63,000 (Over Applied)
Department F	$ 24,810 (Under Applied)

EXPLANATION :

	Department D	Department E	Department F
Applied Manufacturing overhead(see required 2 )	$ 144,000	$ 231,000	$ 93,690
Actual manufacturing overhead incurred	$ 148,500	$ 168,000	$ 118,500
Over or Under Applied	$ 4.500 (Under Applied)	$63,000 (Over Applied)	$ 24,810 (Under Applied)
	(148,500 -144,000 )	(168,000 -231,000)	(118,500 -93690 )