Question

The following account balances at the beginning of January were selected from the general ledger of Crispy Chips Manufacturing​ Company:

Work in process inventory $5,980 $0
Raw materials inventory $2,320 $28400
Finished goods inventory $14,340 $40500

Additional​ data:

1. Actual manufacturing overhead for January amounted to $78,200
2. Total direct labor cost for January was $125,000
3. The predetermined manufacturing overhead rate is based on direct labor cost. The budget for the year called for $120,000 of direct labor cost and $78,000 of manufacturing overhead costs.
4. The only job unfinished on January 31 was Job No.​ 151, for which total direct labor charges were $3,200 (16 direct labor​ hours) and total direct material charges were $1,720.
5. Cost of direct materials placed in production during January totaled $62,250 There were no indirect material requisitions during January.
6. January 31 balance in raw materials inventory was $3,100
7. Finished goods inventory balance on January 31 was $17,420

Has manufacturing overhead been overallocated or underallocated and by what amount as of January​ 31?

a. Overallocated by $200
b. Underallocated by $200
c. Underallocated by $3,250
d. Overallocated by $3,050

Answer 1

d. Overallocated by $3,050

Step-by-step explanation:

Allocation of Overheads

If Actual Manufacturing Overheads > Applied Manufacturing Overheads, we say Overheads are under-applied.

If Actual Manufacturing Overheads < Applied Manufacturing Overheads, we say Overheads are over-applied.

Therefore,

Actual Manufacturing Overheads = $78,200

Applied Manufacturing Overheads = $81,250 ($0.65 x $125,000)

Thus, we have over-applied situation

Overallocation = $81,250 - $78,200 = $3,050

Conclusion :

Manufacturing overhead has been over-allocated by $3,050 as of January 31.