Question

	Budget		Actual
Direct labor hours. . . . . . . . . . . . . . . . . . . . . . . .	7,600	hours	6,100	hours
Machine hours. . . . . . . . . . . . . . . . . . . . . . . . . . .	7,000	hours	6,500	hours
Depreciation on salespeople's autos. . . . . . . . . . .		$21,500		$21,500
Indirect materials. . . . . . . . . . . . . . . . . . . . . . . . .		$49,000		$54,500
Depreciation on trucks used to deliver uniforms
to customers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		$13,000		$10,500
Depreciation on plant and equipment. . . . . . . . . . .		$66,000		$67,000
Indirect manufacturing labor. . . . . . . . . . . . . . . . .		$39,000		$40,000
Customer service hotline. . . . . . . . . . . . . . . . . . .		$19,500		$21,000
Plant utilities. . . . . . . . . . . . . . . . . . . . . . . . . . . .		$35,000		$37,500
Direct labor cost. . . . . . . . . . . . . . . . . . . . . . . . .		$71,000		$86,000

Requirement 1. Compute the predetermined manufacturing overhead rate.

Enter the formula for predetermined manufacturing overhead? rate, then compute the rate.

Estimated yearly overhead costs

/

Estimated yearly machine hours

=

Predetermined overhead rate

/

=

per machine hour

Requirement 2. Calculate the allocated manufacturing overhead for the past year.

						Manufacturing
	Actual machine hours	x	Predetermined overhead rate		=	overhead allocated
		x			=

Requirement 3. Compute the underallocated or overallocated manufacturing overhead. How will this underallocated or overallocated manufacturing overhead be disposed? of?

First calculate the preliminary manufacturing overhead balance using the? T-account.

Manufacturing Overhead

Close the? under- or overallocated overhead to Cost of Goods Sold by journalizing the entry.? (Record debits? first, then credits. Exclude explanations from any journal? entries.)

Journal Entry
Date		Accounts	Debit	Credit

Requirement 4. How can managers use accounting information to help control manufacturing overhead? costs?

To help control manufacturing? overhead, managers compare the actual line item amounts for

?

depreciation on delivery trucks

finished goods inventory

manufacturing overhead

work in process inventory

with the budgeted amounts. Managers will also investigate only

?

small

large

differences between actual and budgeted amounts to identify the reasons why actual costs

?

are the same as planned or budgeted costs

are the same as previous years costs

differ from planned or budgeted costs

differ from previous years costs

Answer 1

Solution 1:

Estimated yearly manufactruing overhead = Indirect material + Depreciation on plant and equipment + Indirect labor + Plant utilities

= $49,000 + $66,000 + $39,000 + $35,000 = $189,000

Predetermined overhead rates = Estimated manufacturing overhead / Estimated yearly machine hours

= $189,000 / 7000 = $27 per machine hour

Solution 2:

Allocated manufacturing overhead = Actual machine hours * Pre determined overhead rates

= 6500 * $27 = $175,500

Solution 3:

Manufacturing overhead
Particulars	Debit	Particulars	Credit
Indirect material	$54,500.00	Overhead applied	$175,500.00
Depreciation on plant and equipment	$67,000.00	Underapplied overhead (Bal Fig)	$23,500.00
Indirect manufacturing labor	$40,000.00
Plant utilities	$37,500.00
Total	$199,000.00	Total	$199,000.00

Underapplied overhead = $23,500

Journal Entries
Date	Particulars	Debit	Credit
31-Dec	Cost of goods sold Dr	$23,500.00
	To Manufacturing overhead		$23,500.00
	(Being underapplied overhead closed to COGS)

Solution 4:

To help control manufacturing? overhead, managers compare the actual line item amounts for manufacturing overhead with the budgeted amounts. Managers will also investigate only large differences between actual and budgeted amounts to identify the reasons why actual costs differ from planned or budgeted costs.