Question

Southern Rim Parts estimates its manufacturing overhead to be $454,500 and its direct labor costs to be $1,010,000 for year 1. The first three jobs that Southern Rim worked on had actual direct labor costs of $60,000 for Job 301, $85,000 for Job 302, and $150,000 for Job 303. For the year, actual manufacturing overhead was $424,000 and total direct labor cost was $839,000. Manufacturing overhead is applied to jobs on the basis of direct labor costs using predetermined rates.

Required:
a. How much overhead was assigned to each of the three jobs, 301, 302, and 303?
b. What was the over- or underapplied manufacturing overhead for year 1?

Answer 1

a) Assigned overheads

$

Job 301= 45% ×$60,000 = 27000

Job 302 = 45% × $85,000 =38,250

Job 303 = 45% × $150,000 = 67,500

b) Under- applied overheads = $291,250.00

Step-by-step explanation:

Assigned overheads = Overhead absorption rate(OAR ) × actual labour cost

OAR = ( Estimated overheads for the period / Estimated labour cost) × 100

= $$454,500/ $1,010,000 × 100

= 45% of labour cost

Assigned overheads

Job 301= 45% ×$60,000 = 27,000

Job 302 = 45% × $85,000 =38,250

Job 303 = 45% × $150,000 = 67,500

b) Determine the over or under absorbed overhead

Under-applied or over applied-overhead is the difference between absorbed overhead and the actual overhead.

= Absorbed overhead - actual overhead

= (127,000 + 38,250 + 67,500) - $ 424,000

Under- applied overheads = $291,250.00