Question

Freeman Foundry uses a predetermined manufacturing overhead rate to allocate overhead to individual jobs based on the machine hours required. At the beginning of the year, the company expected to incur the following: (Click the icon to view the beginning of the year information.) At the end of the year, the company had actually incurred the following: (Click the icon to view the ending of the year information.) Requirements 1. Compute Freeman's predetermined manufacturing overhead rate. 2. How much manufacturing overhead was allocated to jobs during the year? 3. How much manufacturing overhead was incurred during the year? Is manufacturing overhead underallocated or overallocated at the end of the year? By how much? 4. Were the jobs overcosted or undercosted? By how much?

Answer 1

1. Computation of the predetermined manufacturing overhead rate:-
	Depreciation on manufacturing plant and equipment	$480,000
	Property taxes on Plant	$20,000
	Plant janitors' wages	$10,000
	Total estimated manufacturing overheads	$510,000
	Predetermined Manufacturing Overhead rate Rate =	Total estimated manufacturing overheads	=	$510,000	=	$9.27	per machiner hour
		Total estimated machine hours		55000

2. Computation of the Manufacturing overhead allocated to jobs during the year:-
a	Actual Machine hours	75,000	hours
b	Predetermined Overhead rate	$9.27	per machiner hour
c	Manufacturing overhead allocated to jobs during the year (a*b)	$695,455
3. Manufacturing Overheads are overallocated because Actual Manufacturing overhead incurred are less than Manufacturing overhead allocated.
Determination of the overallocated overhead :-
	Actual Manufacturing overhead incurred	$600,000
	Manufacturing overhead allocated to jobs	$695,455
	Overallocatd overhead	$95,455
4. Jobs were overcosted by $95455 because Manufacturing Overheads are overallocated by $95455.

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