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In: Accounting

Lotus Company uses a job order cost system and applies overheads to production on the basis...

Lotus Company uses a job order cost system and applies overheads to production on the basis of direct labour costs. In establishing the predetermined overhead rates for 2015, the following estimates were made for the year: Manufacturing Overhead $960,000 Direct Labour Cost $800,000 Machine Hours 30,000 Labour Hours 50,000 During the month of October, the job cost sheet showed the following costs and production data for Job # 458: Direct Materials Used $120,000 Direct Labour Cost $80,000 Direct Labour Hours 5,000 Machine Hours 3,000 Required: a. Calculate the company’s predetermined overhead application rate. b. Calculate the amount of manufacturing overheads applied to Job # 458 c. Calculate the total cost of Job # 458 d. For 2015, the actual direct labour cost of all jobs was $1,200,000 and the actual manufacturing overhead incurred was $2,150,000. Compute the under-or-over applied for the year.

Solutions

Expert Solution

  • All working forms part of the answer
  • Requirement ‘a’

A

Estimated Manufacturing Overhead

$                960,000.00

B

Estimated Direct Labor Cost

$                800,000.00

C = (A/B) x 100

Predetermined Overhead application rate [as % of direct labor cost]

120%

  • Requirement ‘b’

A

Direct Labor Cost for Job #458

$                  80,000.00

B

Predetermined Overhead application rate [as % of direct labor cost]

120%

C = A x B

Manufacturing Overheads applied to Job #458

$                  96,000.00

  • Requirement ‘c’

Direct Material

$                120,000.00

Direct Labor

$                  80,000.00

Manufacturing Overheads applied to Job #458

$                  96,000.00

Total Cost of Job #458

$                296,000.00

  • Requirement ‘d’

A

Actual Direct Labor Cost

$            1,200,000.00

B

Predetermined Overhead application rate [as % of direct labor cost]

120%

C = A x B

Manufacturing Overhead applied

$            1,440,000.00

D

Actual Manufacturing Overhead incurred

$            2,150,000.00

Overheads are

UNDER - APPLIED, as applied overhead are LESS than actual overheads

E = D - C

Under - Applied by

$                710,000.00

ekkarill92 answered 2 years ago
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