Question

Southern Rim Parts estimates its manufacturing overhead to be $318,000 and its direct labor costs to be $1,060,000 for year 1. The first three jobs that Southern Rim worked on had actual direct labor costs of $65,000 for Job 301, $90,000 for Job 302, and $175,000 for Job 303. For the year, actual manufacturing overhead was $399,000 and total direct labor cost was $834,000. 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. Job 301 = $19,500

Job 302 = $27,000

Job 303 = $52,500

b. Overhead applied for the year = $250,200

Under-applied overhead = $148,800

Explanation:

a. The computation of overhead was assigned to each of the three jobs, 301, 302, and 303 is shown below:-

Overhead application rate = Budgeted Overhead ÷ Application Base

Application base = Budgeted Overhead ÷ Budgeted Direct Labor costs

= $318,000 ÷ $1,060,000

= 0.3

Overhead assignment to jobs = Budgeted rate × Labor Cost

Job 301

= 0.3 × $65,000

= $19,500

Job 302

= 0.3 × $90,000

= $27,000

Job 303

= 0.3 × $175,000

= $52,500

b. The computation of over- or underapplied manufacturing overhead for year 1 is shown below:-

Overhead applied for the year = Total direct labor cost × Overhead rate

= $834,000 × 0.3

= $250,200

Under-applied overhead = Actual overhead - Applied overhead

= $399,000 - $250,200

= $148,800