Question

1. Predetermined Departmental Overhead Rates, Applying Overhead to Production

   At the beginning of the year, Hallett Company estimated the following:

   	Cutting Department		Sewing Department		Total
   Overhead	$240,000		$350,000		$590,000
   Direct labor hours	31,200		100,200		131,400
   Machine hours	150,000		—		150,000

   Hallett uses departmental overhead rates. In the cutting department, overhead is applied on the basis of machine hours. In the sewing department, overhead is applied on the basis of direct labor hours. Actual data for the month of June are as follows:

   	Cutting Department		Sewing Department		Total
   Overhead	$20,610		$35,750		$56,360
   Direct labor hours	2,800		8,600		11,400
   Machine hours	13,640		—		13,640

   Required:

   1. Calculate the predetermined overhead rates for the cutting and sewing departments. Round your answers to the nearest cent.

   Cutting department	$ per machine hour
   Sewing department	$ per direct labor hour

   2. Calculate the overhead applied to production in each department for the month of June. Use overhead application rates that are rounded to the nearest cent in your calculations, and round your final answers to the nearest dollar.

   Cutting department	$
   Sewing department	$

   3. By how much has each department's overhead been overapplied or underapplied?

   Cutting department	$
   Sewing department

Answer 1

1.
	Predetermined overhead rate
Cutting department [ Estimated overhead / Estimated machine hours = 240000 / 150000 ]	1.60	per machine hour
Sewing department [ Estimated overhead / Estimated direct labor hours = 350000 / 100200 ]	3.49	per direct labor hour

2.
	Overhead applied
Cutting department [ Predetermined overhead rate * Actual machine hours = 1.60 * 13640 ]	21824
Sewing department [ Predetermined overhead rate * Actual direct labor hours = 3.49 * 8600 ]	30014

3.

When the overhead applied is more than the actual overhead, the overhead is overapplied and when the overhead applied is less than the actual overhead, the overhead is underapplied.

Cutting department [ 21824 - 20610 ]	1214	Overapplied
Sewing department [ 30014 - 35750 ]	5736	Underapplied