Question

PA2-7 (Algo) Selecting an Allocation Base and Analyzing Manufacturing Overhead [LO 2-3, 2-5) 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 $ 589,000 $ 391,000 16,000 hours 7,000 hours Actual Value $ 650,000 $ 445,000 17,500 hours 8,000 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.)

Answer 1

	Answer 1
	Estimated manufacturing overhead cost	$     589,000
Divided by:	Estimated direct labour hours	16,000
	Predetermined overhead rate per direct labor hour	$          36.81
	Predetermined overhead rate per direct labor hour	$          36.81
Multiply:	Actual direct labour hours	17,500
	Applied manufacture overhead	$     644,175
	Actual manufacture overhead	$     650,000
Less:	Applied manufacture overhead	$     644,175
	Under (over) applied overhead	$          5,825
	Under applied overhead	$          5,825
	Answer 2
	Estimated manufacturing overhead cost	$     589,000
Divided by:	Estimated direct labour costs	$     391,000
	Predetermined overhead rate per direct labor costs	151.00%
	Predetermined overhead rate per direct labor costs	151.00%
Multiply:	Actual direct labour costs	$     445,000
	Applied manufacture overhead	$     671,950
	Actual manufacture overhead	$     650,000
Less:	Applied manufacture overhead	$     671,950
	Under (over) applied overhead	$     (21,950)
	Over applied overhead	$       21,950
	Answer 3
	Estimated manufacturing overhead cost	$     589,000
Divided by:	Estimated machine hours	7,000
	Predetermined overhead rate per direct machine hour	$          84.14
	Predetermined overhead rate per direct machine hour	$          84.14
Multiply:	Actual direct machine hours	8,000
	Applied manufacture overhead	$     673,120
	Actual manufacture overhead	$     650,000
Less:	Applied manufacture overhead	$     673,120
	Under (over) applied overhead	$     (23,120)
	Over applied overhead	$       23,120
	Answer 4
	Most accurete measures	Direct labour hour
	From above the all three base, Base which has minimum difference between the actual cost and applied overhead cost.
	Direct labour hour base has minimum difference between the actual cost and applied overhead cost, as compred to the other two bases.