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:

Estimated Value Actual Value
Manufacturing overhead cost $732,000 $842,000
Direct labor cost $366,000 $377,000
Direct labor hours 14,640 hours 16,600 hours
Machine hours 18,300 hours 17,500 hours

Required:
Based on the company’s current allocation base (direct labor hours), compute the following:
a. Predetermined overhead rate.
b. Applied manufacturing overhead.
c. Over- or underapplied manufacturing overhead.

Answer 1

The predetermined overhead rate is $50 per direct labor hour. The applied manufacturing overhead is $830,000. There is a $12,000 overapplied manufacturing overhead.

Step-by-step explanation:

To compute the predetermined overhead rate, divide the estimated manufacturing overhead cost by the estimated allocation base. In this case, the estimated manufacturing overhead cost is $732,000 and the estimated allocation base is 14,640 direct labor hours. Therefore, the predetermined overhead rate is $732,000 / 14,640 = $50 per direct labor hour.

To calculate the applied manufacturing overhead, multiply the actual allocation base (direct labor hours) by the predetermined overhead rate. The actual allocation base is 16,600 direct labor hours. Therefore, the applied manufacturing overhead is $50 * 16,600 = $830,000.

To determine whether there is overapplied or underapplied manufacturing overhead, compare the applied manufacturing overhead with the actual manufacturing overhead cost. The actual manufacturing overhead cost is $842,000. Therefore, the over- or underapplied manufacturing overhead is $842,000 - $830,000 = $12,000 overapplied.

Answer 2

Results are below.

Step-by-step explanation:

Giving the following information:

Estimated Value Actual Value

Manufacturing overhead cost $732,000 $842,000

Direct labor hours 14,640 hours 16,600 hours

To calculate the predetermined manufacturing overhead rate we need to use the following formula:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Predetermined manufacturing overhead rate= 732,000 / 14,640

Predetermined manufacturing overhead rate= $50 per direct labor hour

Now, we can allocate overhead:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Allocated MOH= 50*16,600

Allocated MOH= $830,000

Finally, the over/under allocation:

Under/over applied overhead= real overhead - allocated overhead

Under/over applied overhead= 842,000 - 830,000

Underapplied overhead= $12,000