Calculating Actual and Applied Manufacturing Overhead Costs and Over–or Underapplied Overhead Costs
Verizox Company uses a job order costing system with manufacturing overhead applied to products based on direct labor hours. At the beginning of the most recent year, the company estimated its manufacturing overhead cost at $200,000. Estimated direct labor cost was $500,000 for 20,000 hours (average of $25 per hour).
Actual costs for the most recent month are summarized here:
Item Description | Total Cost |
Direct labor (2,000 hours @ $26 per hour) | $52,000 |
Indirect costs |
|
Indirect labor | 2,400 |
Indirect materials | 3,300 |
Factory rent | 3,200 |
Factory supervision | 4,700 |
Factory depreciation | 5,600 |
Factory janitorial work | 1,100 |
Factory insurance | 1,700 |
General and administrative salaries | 4,100 |
Selling expenses | 5,300 |
Required:
1.Calculate the predetermined overhead rate.
2. Calculate the amount of applied manufacturing overhead.
3. Calculate actual manufacturing overhead costs. Explain which costs you excluded and why.
4. Compute over–or underapplied overhead.
5. Suppose that the over–or underapplied manufacturing overhead was not properly transferred to Cost of Goods Sold at the end of the period. Explain the impact that oversight would have on Verizox’s cost of goods sold and net income for the period.
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