Question

Aspen Company estimates its manufacturing overhead to be $891,000 and its direct labor costs to be $540,000 for year 2. Aspen worked on three jobs for the year. Job 2-1, which was sold during year 2, had actual direct labor costs of $168,000. Job 2-2, which was completed, but not sold at the end of the year, had actual direct labor costs of $293,000. Job 2-3, which is still in work-in-process inventory, had actual direct labor costs of $118,000. Actual manufacturing overhead for year 2 was $960,000. Manufacturing overhead is applied on the basis of direct labor costs.

Required:
A. How much overhead was applied to each job in year 2?
B. What was the over- or underapplied manufacturing overhead for year 2?

Answer 1

See below

Step-by-step explanation:

First, we need to calculate the predetermined overhead rate.

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

Predetermined manufacturing overhead rate = 891,000/540,000 = $1.65 per direct labor dollar

We will now allocate overhead to each job

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

Job 2-1 = $1.65 × $168,000 = $277,200

Job 2-2 = $1.65 × $293,000 = $483,450

Job 2-3 = $1.65 × $118,000 = $194,700

Total allocated overhead = $955,350

The under/over allocation overhead

Under/over applied overhead

= Real overhead - Allocated overhead

Under/over applied overhead

= $960,000 - $955,350

= $4,650