Question

Vernon, Incorporated estimates manufacturing overhead costs for the Year 3 accounting period as follows.

Equipment depreciation $ 190,700
Supplies 19,600
Materials handling 33,400
Property taxes 14,500
Production setup 20,300
Rent 43,300
Maintenance 39,300
Supervisory salaries 282,100
The company uses a predetermined overhead rate based on machine hours. Estimated hours for labor in Year 3 were 207,000 and for machines were 134,000.

a. Calculate the predetermined overhead rate.
b. Determine the amount of manufacturing overhead applied to Work in Process Inventory during the Year 3 period if actual machine hours were 149,000.

Answer 1

a. To calculate the predetermined overhead rate, we need to add up the estimated overhead costs and divide them by the estimated machine hours.

Estimated manufacturing overhead costs = $190,700 + $19,600 + $33,400 + $14,500 + $20,300 + $43,300 + $39,300 + $282,100 = $643,200

Predetermined overhead rate = Estimated manufacturing overhead costs / Estimated machine hours

Predetermined overhead rate = $643,200 / 134,000 machine hours = $4.80 per machine hour

b. To determine the amount of manufacturing overhead applied to Work in Process Inventory during the Year 3 period, we need to multiply the actual machine hours by the predetermined overhead rate.

Manufacturing overhead applied to Work in Process Inventory = Actual machine hours x Predetermined overhead rate

Manufacturing overhead applied to Work in Process Inventory = 149,000 machine hours x $4.80 per machine hour = $715,200

Therefore, $715,200 of manufacturing overhead would be applied to Work in Process Inventory during the Year 3 period.

Step-by-step explanation: