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: Manufacturing overhead cost Direct labor cost Direct labor hours Machine hours Estimated Value $ 683,800 $ 485, eee R 17,4ee hours 8,488 hours Actual Value $ 664, eee $ 459, eee 18.9ee hours 9, 4ee 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: o. Predetermined overhead rate. (Round your answer to 2 decimal places, le. 3.6395) b. Applied manufacturing overhead (Round your intermediate calculations to 2 decimal places and final answer to the nearest whole dollar amount.) c. Over or underappiled manufacturing overhead (Round your Intermediate calculations to 2 decimal places and final answer to the nearest whole dollar amount.) 3. the company had used machine hours instead of direct labor hours) as its allocation base compute the following: o. 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 dollor amount.) c. Over or underappled manufacturing overhead (Round your intermediate calculations to 2 decimal places and final answer to the nearest whole dollar amount.)

Answer 1

Formulas used:

1.Predetermined Overhead rate = Estimated total manufacturing cost/Estimated cost driver

2.Applied Manufacturing Overhead = Predetermined Overhead rate × Actual units of the cost driver

3.Overapplied or underapplied overhead = Applied Overhead - Actual Overhead

A positive value indicates overapplied overhead while negative value indicates underapplied overhead.

1.Based on direct labour hours

a.Predetermimed Overhead rate = $603,000/17,000 hours = $34.66 per direct labour hour

b.Applied manufacturing overhead = $34.66 × 18,900 hours = $655,074

c.Over or under applied manufacturing overhead = $655,074 - $664,000 = - $8,926(under applied)

2.Based in direct labour dollars

a.Predetermined overhead rate = $603,000/$405,00 × 100 = 148.89% of direct labour cost

b.Applied manufacturing Overhead = $459,000 × 148.89% = $683,405.10

c.Over or under applied manufacturing overhead = $683,405.10 - $664,000 = $19,405.10(over applied)

3.Based on machine hours

a.Predetermined overhead rate = $603,000/8,400 hours = $71.79 per machine hour

b.Applied manufacturing overhead = $71.79 × 9,400 hours = $674,826

c.Over or under applied manufacturing overhead = $674,826 - $664,000 = $10,826 (over applied)

4.Most accurate measure is Direct labour hours.