Question

2.  Southern Rim Parts estimates its manufacturing overhead to be $360,500 and its direct labor costs to be $1,030,000 for year 1. The first three jobs that Southern Rim worked on had actual direct labor costs of $62,000 for Job 301, $87,000 for Job 302, and $160,000 for Job 303. For the year, actual manufacturing overhead was $414,000 and total direct labor cost was $837,000. 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 30?

b. What was the over- or underapplied manufacturing overhead for year 1?

Answer 1

• All working forms part of the answer
• Workings

A	Estimated Budgeted Overhead	$        360,500.00
B	Budgeted direct labor cost	1,030,000
C = A/B	Overhead rate	35% of direct labor cost

• Requirement ‘a’

Working		Job 301	Job 302	Job 303
A	Direct labor cost	$        62,000.00	$         87,000.00	$   160,000.00
B	Overhead rate	35%	35%	35%
C = A x B	Overhead assigned to each job [ANSWER]	$        21,700.00	$         30,450.00	$     56,000.00

• Requirement ‘b’

A	Actual Direct Labor cost	$   837,000.00
B	Overhead rate	35%
C= A x B	Overhead applied	$   292,950.00
D	Actual Manufacturing Overhead	$   414,000.00
	Overheads are	Under - Applied
E = D - C	Overhead Under Applied by	$   121,050.00

Answer: Overheads are UNDER-APPLIED by $ 121,050