Question

Amberjack Company is trying to decide on an allocation base to use to assign manufacturing overhead to jobs. The company has always used direct labor hours to assign manufacturing overhead to products, but it is trying to decide whether it should use a different allocation base such as direct labor dollars or machine hours. Actual and estimated data for manufacturing overhead, direct labor cost, direct labor hours, and machine hours for the most recent fiscal year are summarized here Estimated Value $589,000 $ 391,000 Actual Value 650,000 $445,000 Manufacturing overhead cost Direct labor cost Direct labor hours Machine hours 16,000 hours 7,000 hours 17,500 hours 8,000 hours Required: 1. Based on the company's current allocation base(t labor hours), compute the following a. Predetermined overhead rate. (Round your answer to 2 decimal places.) termined Overhead Rate per direct labor hour b. Applied manufacturing overhead. (Round your intermediate calculations to 2 decimal places and final answer to the nearest whole dollar amount.) Ma c. Over-or underapplied manufacturing overhead. (Round your intermediate calculations to 2 decimal places and final answer to the nearest whole dollar amount.) Manufacturing Overhead Underapplied by

Answer 1

1. Allocation base is Direct Labor Hours

a. Predetermined overhead rate = Estimated Manufacturing overheads / Estimated Direct Labor Hours = $589,000 / 16000 = $36.81 per direct labor hour

b. Applied manufacturing overheads = Actual direct labor hours * Predetermined overhead rate = 17,500 * 36.81 = $644,175

c. Over-under applied manufacturing overhead = Actual manufacturing overhead (-) Applied manufacturing overheads = $650,000 (-) $644,175 = $5,825 (underapplied by)

2. Allocation base is Direct Labor Cost

a. Predetermined overhead rate = Estimated Manufacturing overheads / Estimated Direct Labor Cost * 100 = $589,000 / $391,000 *100 = 150.64% of direct labor cost

b. Applied manufacturing overheads = Actual direct labor cost * Predetermined overhead rate = $445,000 * 150.64% = $670,348

c. Over-under applied manufacturing overhead = Actual manufacturing overhead (-) Applied manufacturing overheads = $650,000 (-) $670,348 = $20,348 (overapplied by)

3. Allocation base is machine hours

a. Predetermined overhead rate = Estimated Manufacturing overheads / Estimated Machine hours = $589,000 / 7000 = $84.14 per machine hour

b. Applied manufacturing overheads = Actual machine hours * Predetermined overhead rate = 8000 * $84.14 = $673,120

c. Over-under applied manufacturing overhead = Actual manufacturing overhead (-) Applied manufacturing overheads = $650,000 (-) $673,120 = $23,120 (overapplied by)