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 $ 584,000 $ 386,000 15,500 hours 6,500 hours Actual Value $ 645,000 $ 440,000 17,000 hours 7,500 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, l.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 1a. Predetermined Overhead Rate 1b Applied Manufacturing Overhead 1c Manufacturing Overhead 2a. Predetermined Overhead Rate S of direct labor cost

Answer 1

1. Based on Direct labour hours

a. Predetermined Overhead rate = Estimated manufacturing overhead/ Estimated labour hours

= $584,000/15,500

=$37.68

b. Applied manufacturing overhead = Actual labour hours * Predetermined Overhead rate

= 17,000 * 37.68

= $640,560

c. Over(under) applied manufacturing overhead = Actual manufacturing overhead- Applied manufacturing overhead

= $645,000 - $640,560

Under applied manufacturing overhead = $4,440

2. Based on Direct labour dollars

a. Predetermined Overhead rate = Estimated manufacturing overhead/ Estimated direct labour cost

= $584,000/$386,000

= $1.51

b. Applied manufacturing overhead = Actual direct labour cost * Predetermined Overhead rate

= $440,000* $1.51

= $664,400

c. Over(under) applied manufacturing overhead = Actual manufacturing overhead- Applied manufacturing overhead

=$645,000 - $664,400

Over applied manufacturing overhead = $19,400

3.Based on Machine hours:

a. Predetermined Overhead rate = Estimated manufacturing overhead/ Estimated machine hours

= $584,000/6,500

= $89.85

b. Applied manufacturing overhead = Actual machine hours * Predetermined Overhead rate

= 7,500*$89.85

= $673,875

c. Over(under) applied manufacturing overhead = Actual manufacturing overhead- Applied manufacturing overhead

=$645,000 - $673,875

Over applied manufacturing overhead = $28,875

4. Based on last year data, Direct Labour hours as a base is the most accurate measure for applying manufacturing overhead.

Summary

1a.	Predetermined Overhead rate	$37.68	per direct labour hour
1b.	Applied manufacturing overhead	$640,560
1c.	Manufacturing overhead- under applied	$4,440
2a.	Predetermined Overhead rate	$1.51	% of direct labour cost
2b.	Applied manufacturing overhead	$664,400
2c.	Manufacturing overhead -over applied	$19,400
3a.	Predetermined Overhead rate	$89.95	per machine hour
3b.	Applied manufacturing overhead	$673,875
3c.	Manufacturing overhead -over applied	$28,875
4	Most accurate measure	Direct labour hours