Question

Question number 3: Cooper's Company manufactures custom engines for use in the lawn and garden equipment industry. The company applies manufacturing overhead based on machine hours. Selected data for costs incurred for Job 798 are as follows: Direct materials used........... ..$4,200 Direct labor hours worked........... .............. 280 Machine hours used... .......... 425 Direct rate per hour.......... $18 Predetermined overhead rates based on machine hours............ $20 What is the total manufacturing cost of Job 798? a. $17,740 b. $ 5,040 c. $ 8,500 d. $ 4,905

Answer 1

Solution 3:

Calculation of total manufacturing cost of Job 798 :

As per the information given in the question we have

Direct Labor hours worked = 280

Direct Labor rate per hour = $18.00 per hour

Thus the Direct Labour cost = Direct Labor hours worked * Direct Labor rate per hour

= 280 * $ 18

= $ 5,040

Thus the Direct Labour Cost = $ 5,040

As per the information given in the question we have

Predetermined overhead rate is = $20.00 per machine hour

Machine hours for Job 798 = 425

The total manufacturing overhead cost = Predetermined overhead rate * Machine hours for Job 798

Thus the total manufacturing overhead cost of Job 798

= $ 20 * 425 = $ 8,500

Thus the total manufacturing overhead cost of Job 798 = $ 8,500

We know that the total Manufacturing cost = Direct Materials cost + Direct Labor cost + total manufacturing overhead cost

Applying the available information we have

Direct Materials cost = $ 4,200 ;

Direct Labor cost = $ 5,040 ;

Total manufacturing overhead cost= $ 8,500

The total Manufacturing cost = $ 4,200 + $ 5,040 + $ 8,500

= $ 17,740

Thus the total manufacturing cost of Job 798 = $ 17,740

The solution is option a. $ 17,740

Solution 4:

Calculation of pre determined manufacturing overhead rate :

As per the information given in the question a pre determined manufacturing overhead rate based on direct labour hours, is used to apply manufacturing overhead to jobs.

Thus the pre determined manufacturing overhead rate = Estimated manufacturing overhead cost / Estimated Direct labor Hours

We know that

Estimated manufacturing overhead cost = $ 550,000   ; Estimated Direct Labor Hours = 50,000

Applying the above information in the formula we have

= $ 550,000 / 50,000

= $ 11

Thus the pre determined manufacturing overhead rate based on direct labour hours is = $ 11

Calculation of applied manufacturing overhead cost :

The Application of manufacturing overhead based on pre determined manufacturing overhead rate is calculated as follows :

= Actual Direct labor Hours * Pre determined overhead rate

We know that

Actual Direct labor Hours = $ 60,000 ;    Pre determined overhead rate = $ 11

Applying the above information in the formula we have

= 60,000 * $ 11

= $ 660,000

Thus Applied manufacturing overhead = $ 660,000

As per the available information we now have

Applied manufacturing overhead cost = $ 660,000

Actual manufacturing overhead cost = $ 500,000

Since the applied manufacturing overhead cost is greater than the actual manufacturing overhead cost, it is inferred that the manufacturing overhead is over applied by

= $ 660,000 - $ 500,000

= $ 160,000

Thus the manufacturing overhead was over applied for the year by $ 160,000

The solution is Option b : $ 160,000 over applied