Question

In December 2016, Learer Company's manager estimated next year's total direct labor cost assuming 50 persons working an average of 2,500 hours each at an average wage rate of $20 per hour. The manager also estimated the following manufacturing overhead costs for 2017 Indirect labor Factory supervision Rent on factory building Factory utilities Factory insurance expired Depreciation-Factory equipment 494, 000 Repairs expense-Factory equipment Factory supplies used Miscellaneous production costs 50,000 Total estimated overhead costs $1,500, 000 $ 333, 200 128,000 154, 000 102,000 82, 000 74,000 82,800 At the end of 2017, records show the company incurred $1,600,000 of actual overhead costs. It completed and sold five jobs with the following direct labor costs: Job 201, $618,000, Job 202, $577,000; Job 203, $312,000; Job 204, $730,000, and Job 205, $328,000. In addition, Job 206 is in process at the end of 2017 and had been charged $31,000 for direct labor. No jobs were in process at the end of 2016. The company's predetermined overhead rate is based on direct labor cost

Answer 1

Answer: The answer is ($76,280,000)

Step-by-step explanation:

POAR = Budgeted Overhead / Budgeted labour cost

Total direct labour cost = hours worked × wage rate per hour

Hours worked = 2,500 hours , wage rate per hour = $20

= 2,500 × 20

= $50,000

Budgeted Overhead = $1,500,000, Budgeted labour cost = $50,000

= 1,500,000 / 50,000

= 30 × actual activity

Actual activity direct labour = 618,000 +577,000 + 310,000 + 730,000 + 328,000 + 31,000 = 2,596,000

Overhead absorbed = 30 × 2,596,000

= 77,880,000

Actual Overhead = 1,600,000

Actual Overhead - Overhead absorbed

= 1,600,000 - 77,880,000

= ($76,280,000)

Since the overhead absorbed is greater than actual overhead, this is known as over absorption.