Question

Weiters CompanyWeiters Company

produces uniforms. The company allocates manufacturing overhead based on the machine hours each job uses.

Weiters CompanyWeiters Company

reports the following cost data for the past? year:

Budget Actual
Direct labor hours. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,100 hours 6,100 hours
Machine hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,700 hours 6,400 hours
Depreciation on salespeople's autos . . . . . . . . . . . $ 20,000 $ 20,000
Indirect materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 51,500 $ 53,000
Depreciation on trucks used to deliver uniforms
to customers . . . . . . . . . . . . . . . . . . . . . . . $ 15,500 $ 14,000
Depreciation on plant and equipment . . . . . . . . . . . $ 69,000 $ 71,000
Indirect manufacturing labor. . . . . . . . . . . . . . . . . . . . $ 41,000 $ 43,000
Customer service hotline . . . . . . . . . . . . . . . . . . . . . . $ 20,000 $ 22,000
Plant utilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,400 $ 21,400
Direct labor cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 69,000 $ 87,000

1. Compute the predeterimned manufacturing overhead rate

2. calculate the allocated manufacturing overhead for the past year

3. compute the allocated or overallocated manufacturing over head. How will this underallocated or overallocated manufcaturing overhead be disposed of

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

Answer 1

Answer to Part 1.:

Predetermined Manufacturing Overhead Rate = Estimated Manufacturing Overhead / Estimated Machine Hours
Estimated Manufacturing Overhead = Indirect Materials + Depreciation on Plant and Equipment + Indirect Manufacturing Labor + Plant Utilities
Estimated Manufacturing Overhead = $51,500 + $69,000 + $41,000 + $19,400
Estimated Manufacturing Overhead = $180,900

Predetermined Manufacturing Overhead Rate = 180,900 / 6,700
Predetermined Manufacturing Overhead Rate = $27

Answer to Part 2.:

Allocated Manufacturing Overhead = Predetermined Manufacturing Overhead Rate * Actual Machine Hours
Allocated Manufacturing Overhead = $27 * 6,400
Allocated Manufacturing Overhead = $172,800

Answer to Part 3.:

Actual Manufacturing Overhead = $53,000 + $71,000 + $43,000 + $21,400
Actual Manufacturing Overhead = $188,400

Since, Actual Manufacturing Overhead i.e. $188,400 are more than the Allocated Manufacturing Overhead i.e. $172,800, the Manufacturing overhead is Under-allocated by $15,600.

Answer to Part 4.:

These accounting information helps managers in controlling manufacturing overhead costs, by comparing actual manufacturing cost with Budgeted manufacturing cost and identifying the difference between them and reason for item.