Question

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: Manufacturing overhead cost Direct labor cost Direct labor hours Machine hours Estimated Value $ 599,000 $ 401.000 17,000 hours 8.000 hours Actual Value $ 660.000 $ 455,000 18.500 hours 9.000 hours Required: 1. Based on the company's current allocation base (direct labor hours), compute the following: a. Predetermined overhead rate. (Round your answer to 2 decimal places.) b. Applied manufacturing overhead. (Round your intermediate calculations to 2 decimal places and final answer to the nearest whole dollar amount.) c. Over- or underapplied manufacturing overhead. (Round your intermediate calculations to 2 decimal places and final answer to the nearest whole dollar amount.) 2. If the company had used direct labor dollars (instead of direct labor hours) as its allocation base, compute the following: a. Predetermined overhead rate. (Round your answer to 2 decimal places, i.e. 3.63%) b. Applied manufacturing overhead. (Round your intermediate calculations to 2 decimal places and final answer to the nearest whole dollar amount.) c. Over- or underapplied manufacturing overhead. (Round your intermediate calculations to 2 decimal places and final answer to the nearest whole dollar amount.) 3. If the company had used machine hours (instead of direct labor hours) as its allocation base, compute the following: a. Predetermined overhead rate. (Round your answer to 2 decimal places.) b. Applied manufacturing overhead. (Round your intermediate calculations to 2 decimal places and final answer to the nearest whole dollar amount.) c. Over- or underapplied manufacturing overhead. (Round your intermediate calculations to 2 decimal places and final answer to the nearest whole dollar amount.) 4. Based on last year's data alone, which allocation base would have provided the most accurate measure for applying manufacturing overhead costs to production? per direct labor hour % of direct labor cost 1a. Predetermined Overhead Rate 1b. Applied Manufacturing Overhead 1c. Manufacturing Overhead 2a. Predetermined Overhead Rate 2b. Applied Manufacturing Overhead 2c. Manufacturing Overhead 3a. Predetermined Overhead Rate 3b. Applied Manufacturing Overhead 3c. Manufacturing Overhead 4. Most accurate measure per machine hour

Answer 1

1.
a.
Predetermined overhead rate	Estimated manufacturing overhead/No of labor hours
Predetermined overhead rate	599000/17000
Predetermined overhead rate	$35.24
b.
Applied manufacturing overhead	Predetermined overhead rate*Actual labor hours
Applied manufacturing overhead	35.24*18500
Applied manufacturing overhead	$651,940
c.
Actual manufacturing costs	$660,000
Applied manufacturing overhead	$651,940
Under applied overhead	$8,060
2.
a.
Predetermined overhead rate	Estimated manufacturing overhead/Estimated labor costs
Predetermined overhead rate	599000/401000
Predetermined overhead rate	$1.49
b.
Applied manufacturing overhead	Predetermined overhead rate*Actual labor costs
Applied manufacturing overhead	1.49*455000
Applied manufacturing overhead	$677,950
c.
Actual manufacturing costs	$660,000
Applied manufacturing overhead	$677,950
Over applied overhead	$17,950
3.
a.
Predetermined overhead rate	Estimated manufacturing overhead/Estimated machine hours
Predetermined overhead rate	599000/8000
Predetermined overhead rate	$74.88
b.
Applied manufacturing overhead	Predetermined overhead rate*Actual machine hours
Applied manufacturing overhead	74.88*9000
Applied manufacturing overhead	$673,920
c.
Actual manufacturing costs	$660,000
Applied manufacturing overhead	$673,920
Over applied overhead	$13,920
4
Direct labor hours seems to be more accurate method as the actual value is near to estimated value