Question

Brooks Foundry in Charleston, South Carolina​, uses a predetermined manufacturing overhead rate to allocate overhead to individual jobs based on the machine hours required. At the beginning of the​ year, the company expected to incur the​ following:

Manufacturing overhead costs $650,000
Direct labor cost $1,300,000
Machine hours 81,250
At the end of the year, the company had actually incurred:
Direct labor cost $1,190,000
Depreciation on manufacturing plant and equipment $485,000
Property taxes on plant $21,500
Sales salaries $26,000
Delivery drivers' wages $14,500
Plant janitors' wages $11,000
Machine hours 54,500 hours
Requirements:
1. Compute predetermined manufacturing overhead rate.
2. How much manufacturing overhead was allocated to jobs during the​ year?
3. How much manufacturing overhead was incurred during the​ year? Is manufacturing overhead underallocated or overallocated at the end of the​ year? By how​ much?
4. Were the jobs overcosted or​ undercosted? By how​ much?

Answer 1

Brooks Foundry

1. Predetermined manufacturing overhead rate

= $8

2. Allocated manufacturing overhead = Overhead rate multiplied by actual machine hours

= $8 * 54,500

= $436,000

3. Manufacturing overhead incurred during the year = $517,500

Manufacturing overhead is underallocated at the end of the year.

The underallocation = $81,500 ($517,500 - 436,000)

4. The jobs were undercosted by $81,500.

Step-by-step explanation:

a) Data and Calculations:

Estimated costs:

Manufacturing overhead = $650,000

Direct labor cost = $1,300,000

Machine hours = 81,250

Actual costs:

Direct labor cost $1,190,000

Overhead costs:

Depreciation on manufacturing

plant and equipment $485,000

Property taxes on plant $21,500

Plant janitors' wages $11,000

Total actual overhead costs $517,500

Machine hours 54,500 hours

b) Selling Expenses:

Sales salaries $26,000

Delivery drivers' wages $14,500

Total $40,500

c) Computation of the predetermined manufacturing overhead rate:

Predetermined overhead rate = estimated manufacturing overhead costs divided by estimated machine hours

= $650,000/81,250

= $8