Question

Far Play Company uses a job order cost system in each of its three manufacturing departments. Manufacturing overhead is applied to jobs on the basis of direct labour cost in Department A, direct labour hours in Department B, and machine hours in Department C.

In establishing the predetermined overhead rates for 2017, the following estimates were made for the year.

	Department
	A	B	C
Manufacturing Overhead	$720,000	$620,000	$910,000
Direct labour Cost	$590,000	$125,000	$620,000
Direct labour Hours	47,500	41,500	40,000
Machine Hours	91,000	107,000	128,500

During January, the job cost sheets showed the following costs and production data.

	Department
	A	B	C
Direct Materials Used	$92,500	$82,000	$66,000
Direct Labour Cost	$54,500	$33,000	$48,500
Manufacturing Overhead Incurred	$63,500	$69,500	$72,500
Direct Labour Hours	3,500	4,400	4,400
Machine Hours	7,250	10,750	14,500

Required:

1. Calculate the predetermined overhead rate for each department

2. Calculate the total manufacturing costs assigned to jobs in January in each department.

3. Calculate the under-or over-applied overhead for each department at January 31st.

Answer 1

Ans-

Department A = Manufacturing overhead / Direct labor costs

=$720,000 / $590,000

=122%

Department B= Manufacturing overhead / Direct labor hours

=$620,000 /41,500

=$14.94

Department = Manufacturing overhead / Machine hours

$910,000/128,500

=$7.08

___________________________________________________________________________

Total manufacturing costs assigned to jobs in January

Department A =$54,500 * 122/100=$66,490 +$54,500+$92,500=$213,490

Department B=4,400 hours* $14.94 =$65,736+$33,000+$82,000=$180,736

Department C= 14,500*$7.08=$102,660+$48,500+$66,000=$217,160

______________________________________________________________________

Department A=Estimates -Actual

=$213,490 - $210,500 ($92,500 +$54,500+$63,500)

Over applied By $2,990

Department B=Estimates -Actual

$180,736 - $184,500 ($82,000+$33,000+$69,500)

=Under applied by $3,764

Department C =Estimates -Actual

=$217,160 - $187,000($66,000+$48,500+$72,500)

=Over applied by $30,160