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

Solution 1:

Predeterimned manufacturing overhead rate = Total budgeted manufacturing overhead / Budgeted machine hours

Budgeted manufacturing overhead = Indirect material + Depreciation on plant and equipment + Indirect manufacturing labor + Plant utilities

= $51,500 + $69,000 + $41,000 + $19,400 = $180,900

Budgeted machine hours = 6700

Predeterimned manufacturing overhead rate = $180,900 / 6700 = $27 per machine hour

Solution 2:

Actual machine hours = 6400 hours

Allocated manufacturing overhead = Actual machine hours * Predetermined overhead rate = 6400 * $27 = $172,800

Solution 3:

Actual manufacturing overhead incurred = $53,000 + $71,000 + $43,000 + $21,400 = $188,400

Underallocated overhead = Actual manufacturing overhead - Allocated manufacturing overhead

= $188,400 - $172,800 = $15,600

Underallocated overhead will be disposed of in cost of goods sold. For disposing underallocated overhead, cost of goods sold will be debited and manufacturing overhead will be credited.

Solution 4:

To control manufacturing? overhead, managers compare the actual manufacturing overhead incurred 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. In this way accouting information help managers to control manufacturing overhead costs