Question

Summer 20 Corp estimates overhead based on direct labor hours and has given you the following information:

Estimated Manufacturing Overhead Costs 2020 $405,000
Estimated Direct Labor Hours for 2020 220,000
Actual Direct Labor Hours for 2020 202,000
Manufacturing Overhead Account Debit Entries total $380,000
1. Determine the predetermined overhead allocation rate stated with cents.
2. Determine the amount of manufacturing overhead that was allocated.
3. Calculate the amount Summer 20 Corp is over or under allocated during the year.

Answer 1

Results are below.

Step-by-step explanation:

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= 405,000 / 220,000

Predetermined manufacturing overhead rate= $1.841 per DLH

Now, we can allocate overhead:

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

Allocated MOH= 1.841*202,000

Allocated MOH= $371,882

Finally, the over/under allocation:

Under/over applied overhead= real overhead - allocated overhead

Under/over applied overhead= 380,000 - 371,882

Underapplied overhead= $8,118