Question

NH Company uses a job-order costing system. The company applies manufacturing overhead to jobs using a predetermined overhead rate based on direct labor-hours. Last year, manufacturing overhead and direct labor-hours were estimated at $80,000 and 16,000 hours respectively, for the year. In June, Job #300 was completed. Materials costs on the job totaled $1,500 and labor costs totaled $2,400 at $6 per hour. At the end of the year, it was determined that the company worked 15,000 direct labor-hours for the year, and incurred $78,000 in actual manufacturing overhead costs. Required a. Determine the predetermined overhead rate for the year.________________ b. Determine the amount of overhead charged to ALL jobs during the year. _________________ c. Determine the amount of underapplied or overapplied overhead for the year._________________ d. Assuming that 100 units were completed, determine the unit cost that would appear on the job cost sheet for Job #300.

Answer 1

a. Predetermined overhead rate is based on estimated direct labor hours.

Predetermined overhead rate = Estimated total overhead cost / Estimated total direct labor-hours = $80,000 / 16,000 hours = $5 per direct labor hour

b. Total actual direct labor hours worked for the year = 15,000 hours

Total amount of overhead charged / applied to all jobs during the year = Total actual direct labor hours worked for the year * Predetermined overhead rate = 15,000 hours * $5 = $75,000

c. Actual maunfacturing overheads incurred for the year = $78,000

Here, the manufacturing overhead applied ( i.e.$75,000 ) are less than the actual manufacturing overheads incurred ( i.e.$78,000 ), hence the overheads are underapplied

Underapplied manufacturing overhead = Actual manufacturing overhead incurred - Manufacturing overheads applied = $78,000 - $75,000 = $3,000

d. Job #300

First let us calculate direct labor hours worked on Job #300

Direct labor cost on Job #300 totaled $2,400 at $6 per hour

Direct labor hours worked on Job #300 = Direct labor cost incurred on Job #300 / Rate per direct labor hour = $2,400 / $6 = 400 hours

Particulars	Total cost	Per unit [ Total cost / 100 units ]
Direct materials	$1,500	$15
(+) Direct labor	$2,400	$24
(+) Overheads applied [ direct labor hours worked * predetermined overhead rate = 400 hours * $5 ]	$2,000	$20
Product cost	$5,900	$59

Thus, unit cost of Job #300 is $59 per unit