Question

Moody Corporation uses a job-order costing system with a plantwide overhead rate based on machine-hours. At the beginning of the year, the company made the following estimates:

Machine-hours required to support estimated production		158,000
Fixed manufacturing overhead cost	$	656,000
Variable manufacturing overhead cost per machine-hour	$	5.00

Required:

1.	Compute the predetermined overhead rate. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

         

2.	During the year, Job 400 was started and completed. The following information was available with respect to this job:

   

Direct materials requisitioned	$	380
Direct labor cost	$	260
Machine-hours used		33

	Compute the total manufacturing cost assigned to Job 400. (Do not round intermediate calculations and round final answer to 2 decimal places.)

        

3-a.	During the year the company worked a total of 145,400 machine-hours on all jobs and incurred actual manufacturing overhead costs of $1,334,410. What is the amount of underapplied or overapplied overhead for the year? (Use the overhead rate determined in requirement 1.)

        

3-b.	If this amount were closed out entirely to Cost of Goods Sold, would net operating income increase or decrease?
	Increase Decrease

Answer 1

Solution:
1.	Predetermined overhead rate.	9.15
Working Notes:
	The predetermined overhead rate
	= Estimated total manufacturing overhead cost / Estimated total machine-hours (MHs)
	Estimated total manufacturing overhead cost
	Estimated fixed manufacturing overhead	$656,000	a
	Estimated variable manufacturing overhead	$790,000	b
	[ Variable manufacturing overhead cost per machine-hour x Machine-hours required to support estimated production ]
	[$5 x 158,000 ]
	Estimated total manufacturing overhead cost	$1,446,000	c = a+b
	Estimated total machine-hours (MHs)	158,000
	The predetermined overhead rate
	= Estimated total manufacturing overhead cost / Estimated total machine-hours (MHs)
	=$1,446,000/158,000
	=$9.151898734
	=$9.15
	=9.15 per MH
2.	The total manufacturing cost assigned to Job 400		941.95
Working Notes:
	The total manufacturing cost assigned to Job 400
	Direct materials	380
	Direct labor	260
	Manufacturing overhead applied	301.95
	( predetermined overhead rate x Machine hours used )
	($9.15 per MH × 33 MHs)
	The total manufacturing cost	941.95
3. a.	The amount of underapplied   is	$4,000
Working Notes:
	Computation of underapplied/overapplied overhead:
	Actual manufacturing overhead (a)	$1,334,410
	Manufacturing overhead applied (b)	$1,330,410
	[Actual machine-hours × Predetermined overhead rate ]
	[145,400 machine-hours x $9.15 ]
	Underapplied overhead (a) – (b)	$4,000
	Manufacturing OH applied is $1,330,410 which is lower than Actual manufacturing OH $1,334,410 , hence, it is underapplied by $4,000
3. b.	Net operating income decrease by $4,000
Working Notes:
	If this amount were closed out entirely to Cost of Goods Sold, as result it will increase cost of goods sold by $4,000 and decrease net operating income by $4,000
Please feel free to ask if anything about above solution in comment section of the question.