Question

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 labour cost in Department D, direct labour hours in Department E, and machine hours in Department K.

In establishing the predetermined overhead rates for 2020, the following estimates were made for the year.

		Department
		D		E		K
Manufacturing overhead		$1,280,000		$1,500,000		$840,000
Direct labour costs		$1,600,000		$1,312,500		$472,500
Direct labour hours		105,000		125,000		42,000
Machine hours		420,000		525,000		120,000

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

		Department
		D		E		K
Direct materials used		$147,000		$132,300		$81,900
Direct labour costs		$126,000		$115,500		$39,375
Manufacturing overhead incurred		$103,950		$128,600		$73,950
Direct labour hours		8,400		11,550		3,675
Machine hours		35,700		47,250		10,380

Calculate the predetermined overhead rate for each department. (Round answers to 2 decimal places, e.g. 10.25.)

		Overhead rate
Department D			% of direct labour cost
Department E		$	per direct labour hour
Department K		$	per machine hour

Calculate the total manufacturing costs assigned to jobs in January in each department.

		Manufacturing Costs
Department D		$
Department E		$
Department K		$

Calculate the under- or over-applied overhead for each department at January 31.

		Manufacturing Overhead
Department D		$	Over-applied or Under-applied
Department E		$	Under-applied or Over-applied
Department K		$	Over-applied or Under-applied

Answer 1

Part - 1:

a.

Computation the predetermined rate of department D is:

Predetermined rate of department D = (Value of manufacturing overhead of department D / Value of direct labour costs of department D) * 100

= ($1,280,000 / $1,600,000) * 100

= 0.80 * 100

= 80%

Hence, the predetermined rate of department D is 80%.

b.

Computation the predetermined rate of department E is:

Predetermined rate of department E = Value of manufacturing overhead of department E / Number of direct labour hours of department E

= $1,500,000 / 125,000

= 0.80 * 100

= $12

Hence, the predetermined rate of department E is $12.

c.

Computation the predetermined rate of department K is:

Predetermined rate of department K = Value of manufacturing overhead of department K / Number of machine hours of department K

= $840,000 / 120,000

= 0.80 * 100

= $7

Hence, the predetermined rate of department K is $7.

Part - 2:

a.

Computation the total manufacturing costs of department D is:

Total manufacturing costs of department D = Value of direct material used + Value of direct labour + Value of manufacturing overhead

= $147,000 + $126,000 + $100,800

= $373,800

Hence, the total manufacturing costs of department D is $373,800.

Working note:

Computation the value of applied manufacturing overhead of department D is:

Value of applied manufacturing overhead of department D = Value of direct labour of department D * Predetermined rate of department D

= $126,000 * 80%

= $100,800

Hence, the value of applied manufacturing overhead of department D is $100,800.

b.

Computation the total manufacturing costs of department E is:

Total manufacturing costs of department E = Value of direct material used + Value of direct labour + Value of manufacturing overhead

= $132,300 + $115,500 + $138,600

= $386,400

Hence, the total manufacturing costs of department E is $386,400.

Working note:

Computation the value of applied manufacturing overhead of department E is:

Value of applied manufacturing overhead of department E = Number of direct labour hours of department E * Predetermined rate of department E

= 11,550 * $12

= $138,600

Hence, the value of applied manufacturing overhead of department E is $138,600.

c.

Computation the total manufacturing costs of department K is:

Total actual manufacturing costs of department K = Value of direct material used + Value of direct labour + Value of manufacturing overhead

= $81,900 + $39,375 + $72,660

= $193,935

Hence, the total manufacturing costs of department K is $193,935.

Working Note:

Computation the value of applied manufacturing overhead of department K is:

Value of applied manufacturing overhead of department K = Number of machine hours of department K * Predetermined rate of department K

= 10,380 * $7

= $72,660

Hence, the value of applied manufacturing overhead of department K is $72,660.

Part - 3:

a.

Computation the under-applied overhead of department D is:

Under-applied overhead of department D = Value of actual manufacturing costs of department D - Value of applied manufacturing overhead of department D

= $103,950 - $100,800

= $3,150

Hence, the under-applied overhead of department D is $3,150.

b.

Computation the over-applied overhead of department E is:

Over-applied overhead of department E = Value of actual manufacturing costs of department E - Value of applied manufacturing overhead of department E

= $128,600 - $138,600

= $10,000

Hence, the over-applied overhead of department E is $10,000.

c.

Computation the under-applied overhead of department K is:

Under-applied overhead of department K = Value of actual manufacturing costs of department D - Value of applied manufacturing overhead of department K

= $73,950 - $72,660

= $1,290

Hence, the under-applied overhead of department K is $1,290.