Question

Aspen Company estimates its manufacturing overhead to be $1,121,000 and its direct labor costs to be $590,000 for year 2. Aspen worked on three jobs for the year. Job 2-1, which was sold during year 2, had actual direct labor costs of $178,000. Job 2-2, which was completed, but not sold at the end of the year, had actual direct labor costs of $303,000. Job 2-3, which is still in work-in-process inventory, had actual direct labor costs of $128,000. Actual manufacturing overhead for year 2 was $1,150,000. Manufacturing overhead is applied on the basis of direct labor costs.

Required:

a. How much overhead was applied to each job in year 2?

Job 2-1

Job 2-2

Job 2-3

b. What was the over- or underapplied manufacturing overhead for year 2?

overapplied/underapplied manufacturing overhead ___________

Answer 1

• All working forms part of the answer
• Workings

A	Estimated Manufacturing Overhead	$      1,121,000.00
B	Direct Labor cost estimated	$          590,000.00
C = (A/B) x 100	% of overhead	190%

• Requirement ‘a’

	Actual Direct Labor cost	Overhead rate	Overhead applied
	[A]	[B]	[C = A x B]
Job 2 - 1	$          178,000.00	190%	$        338,200.00 = answer
Job 2 - 2	$          303,000.00	190%	$        575,700.00 = answer
Job 2 - 3	$          128,000.00	190%	$        243,200.00 = answer
Total Overheads applied			$     1,157,100.00

• Requirement ‘b’

A [calculated above]	Total Overheads applied	$      1,157,100.00
B	Total Actual Manufacturing Overhead	$      1,150,000.00
C = A- B	Difference	$              7,100.00
D	Overheads are	OVER -APPLIED for year 2, because Applied overheads are MORE than Actual Overheads
E	Over Applied by	$              7,100.00

--Overheads are Over – Applied by $ 7,100