Question

3.  Tom’s Tool & Die uses a predetermined factory overhead rate based on machine-hours. For August, Tom’s budgeted overhead was $150,500 based on a budgeted volume of 43,000 machine-hours. Actual overhead amounted to $143,000 with actual machine-hours totaling 40,500.

Required:

What was over- or underapplied manufacturing overhead in August? (Do not round intermediate calculations.)

  

4. Marine Components produces parts for airplanes and ships. The parts are produced to specification by their customers, who pay either a fixed price (the price does not depend directly on the cost of the job) or price equal to recorded cost plus a fixed fee (cost plus). For the upcoming year (year 2), Marine expects only two clients (client 1 and client 2). The work done for client 1 will all be done under fixed-price contracts while the work done for client 2 will all be done under cost-plus contracts.

The controller at Marine Components chose direct labor cost as the allocation base in year 2, based on what she considered reflected the relation between overhead and direct labor cost. Year 3 is approaching and again the company only expects two clients: client 1 and client 3. Work for client 1 will continue to be billed using fixed-price contracts, and client 3 will be billed based on cost-plus contracts.

Manufacturing overhead for year 3 is estimated to be $11 million. Other budgeted data for year 3 include:

	Client 1			Client 3
Machine-hours (thousands)		4,400			6,600
Direct labor cost ($000)	$	2,000		$	2,000

Required:

a. Compute the predetermined rate assuming that Marine Components uses machine-hours to apply overhead. (Round your answer to 2 decimal places.)

b. Compute the predetermined rate assuming that Marine Components uses direct labor cost to apply overhead.

Answer 1

• All working forms part of the answer
• Requirement 3

A	Estimated Budgeted Overhead	$        150,500.00
B	Budgeted machine hours	43,000
C = A/B	Overhead rate	$                     3.50
D	Actual machine hours	40,500
E = C x D	Overhead applied	$        141,750.00
F	Actual overhead	$        143,000.00
	Overhead are	Under - Applied
G = F - E	Under Applied	$             1,250.00

Manufacturing Overhead = Under Applied by $ 1,250

• Question 4

Working

	Client 1	Client 2	Total
Machine hours	4,400	6,600	11,000
Direct Labor Cost	$             2,000.00	$            2,000.00	$           4,000.00

Answer

		Requirement 'a'	Requirement 'b'
A	Estimated Manufacturing Overhead	$           11,000.00	$          11,000.00
B	Total Allocation base	11,000 machine hours	$            4,000.00 direct labor cost
C= A/B	Predetermined rate	$ 1.00 per machine hour	$ 2.75 per $ of direct labor cost or 275% of direct labor cost $
		Answer ‘a’	Answer ‘b’