Question

Compute predetermined overhead rates, apply overhead, and calculate under- or overapplied overhead.

(LO 3, 5), AP

Agassi Company uses a job order cost system in each of its three manufacturing departments. Manufacturing overhead is applied to jobs on the basis of direct labor cost in Department D, direct labor hours in Department E, and machine hours in Department K. In establishing the predetermined overhead rates for 2017, the following estimates were made for the year.

Department

	D	E	K
Manufacturing overhead	$1,200,000	$1,500,000	$900,000
Direct labor costs	$1,500,000	$1,250,000	$450,000
Direct labor hours	100,000	125,000	40,000
Machine hours	400,000	500,000	120,000

During January, the job cost sheets showed the following costs and production data.

	D	E	K
Direct materials used	$140,000	$126,000	$78,000
Direct labor costs	$120,000	$110,000	$37,500
Manufacturing overhead incurred	$ 99,000	$124,000	$79,000
Direct labor hours	8,000	11,000	3,500
Machine hours	34,000	45,000	10,400

Instructions

(a) Compute the predetermined overhead rate for each department.

(a) 80%, $12, $7.50

(b) Compute the total manufacturing costs assigned to jobs in January in each department.

(b) $356,000, $368,000, $193,500 (c) Compute the under- or over applied overhead for each department at January 31.

(c) $3,000, $(8,000), $1,000

Answer 1

Answer:

Predetermined Overhead Rate = Estimated Overhead Costs / Estimated Total Base Units

(a.) Computation of the predetermined overhead rate for each department.
Particulars	Department D	Department E	Department K
Manufacturing Overheads	1200,000	1500,000	900,000
Manufacturing Overheads (Allocation based on)	Direct labour cost 1500,000	Direct Labour hours 125,000	Machine hours 120,000
Pre determined Manufacturing Overhead Rate	1200,000/1500,000 =0.80 (or) 80% of Direct labour cost.	1500,000/125,000 =$ 12 per direct labour hour	900,000/120,000 = $ 7.50 per Machine hour.
b.) Computation of the total manufacturing costs assigned to jobs in January in each department.
Particulars	Department D	Department E	Department K
Direct materials used	$140,000	$126,000	$78,000
Direct labor costs	$120,000	$110,000	$37,500
Manufacturing overhead: Deptt.D = 80% of Direct labour cost = 80% of 120,000 = $ 96,000 Deptt.E = $ 12 per Direct labour hour = $ 12 x 11,000 hours = $132,000 Deptt.K = $ 7.50 per Machine hour = $ 7.50 x 10,400 = $ 78,000	$ 96,000	$132,000	$ 78,000
TOTAL MANUFACTURING COSTS	$ 356,000	$ 368,000	$ 193,500
(c) Compute the under- or over applied overhead for each department at January 31.
Particulars	Department D	Department E	Department K
Actual Manufacturing Overhead - (A)	$ 99,000	$124,000	$79,000
Applied Manufacturing Overhead - (B)	$ 96,000	$132,000	$ 78,000
Under / (Over Applied) Overhead = (A) - (B)	$ 3,000	$ (8,000)	$ 1,000