Question

At the beginning of the year, Glaser Company estimated the following: Assembly Testing Total Department Department $338 000 $630 000 $968 000 Overhead Direct labour hours 130 000 40 000 170 000 Machine hours 45 000 120 000 165 000 Glaser uses departmental overhead rates. In the assembly department, overhead is allocated on the basis of direct labour hours. In the testing department, overhead is allocated on the basis of machine hours. Actual data for the month of March are as follows: Total Assembly Testing Department Department $29 850 $58 000 11 700 3450 Overhead $87 850 Direct labour hours 15 150 Machine hours 4 100 10 900 15 000 Required: 1 Calculate the predetermined overhead rates for the assembly and testing departments. 2 Calculate the overhead allocated to production in each department for the month of March. 3 By how much has each department's overhead been overallocated? Underallocated?

Answer 1

1.     Assembly Department Overhead Rate     = $338,000/130,000 DLH

= $2.60 per direct labor hour

Testing Department Overhead Rate               = $630,000/120,000 mhrs

= $5.25 per machine hour

2.         Assembly Department Applied Overhead = $2.60 × 11,700 = $30,420

Testing Department Applied Overhead = $5.25 × 10,900 = $57,225

3.  

Actual overhead.. Applied overhead Overhead variance.. Assembly Testing Department Department $29,850 $58,000 30,420 57,225 $ (570) $775

Assembly department has over-applied overhead of $570.

Testing department has under-applied overhead of $775.