Question

Problem 15-4A (Part Level Submission) 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 2017, the following estimates were made for the year. Department D к so Manufacturing overhead Direct labor costs Direct labor hours Machine hours $854,000 $1,220,000 150,000 600,000 $1,500,000 $1,875,000 125,000 750,000 $1,020,000 $675,000 60,000 120,000 During January, the job cost sheets showed the following costs and production data. Department D к 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 $186,000 16,500 67,500 $117,000 $56,250 $118,500 5,250 10,390

Answer 1

Manufacturing overhead is applied to jobs on basis of direct labor cost in department D, direct labor hours in Department E and machine hours in Department K. That means, overhead rate shall be created on this basis and later on applied on costs and production data as per the job sheet which is done in the last table.

Particulars	Department D	Department E	Department K
Basis for application of Manufacturing Overhead	Direct labor cost	Direct labor hours	Machine Hours
Budgeted Manufacturing Overhead	854,000	$1,500,000	$ 1,020,000
Basis for Application of Overhead	$1,220,000	125,000	120,000
Overhead Rate (Budgeted Manufacturing Overhead / Basis for Allocation)	70% of Direct Labor Cost	$12 Per Direct Labor Hour	$8.50 Per Machine Hour

Here is the computation of manufacturing costs to be assigned to jobs in January in each department

Particulars	Department D	Department E	Department K
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 Costs x70%)	$126,000
- Department E (16,500 Labor Hours @ $12)		$198,000
- Department K (10,390 Machine Hours @ $8.50)			$ 88,315
Total Manufacturing Cost	$516,000	$552,000	$261,565

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