Question

In: Accounting

Problema Guaraguao Manufacturing is a small manufacturer that uses machine-hours as its activity base for assigned...

Problema

Guaraguao Manufacturing is a small manufacturer that uses machine-hours as its activity base for assigned overhead costs to jobs. The company estimated the following amounts for 2018 for the company and for Job 62:

Company Job 325

Estimasted

Annual Cost

Direct materials $70,000 $5,500

Direct labor $30,000 $2,300

Manufacturing overhead costs $67,500

Machine hours 90,000 2,000

During 2018, the actual machine-hours totaled 94,000, and actual manufacturing overhead costs were $72,000.

Instructions:

Compute the predetermined overhead rate.

Compute the total manufacturing costs for Job 325.

How much overhead is over or underapplied for the year for the company? State amount and whether it is over- or underapplied.

If Carpet Manufacturing sells Job 325 for $15,000, compute the gross profit.

Expert Solution

Ans: (a) Guaraguao manufacturing uses machine hours as its activity base to assign overhead costs to job.

Formula for Predetermined overhead rate:

= Estimated manufacturing overhead costs/ Estimated machine hours

= $67500/ 90000 hours

= $0.75 per hour

(b) Total manufacturing costs for Job 325:

1	Direct Material	$5500
2	Direct Labour	$2300
3	Manufacturing overhead (see note below)	$1500
4	Total Manufacturing costs (1+2+3)	$9300

Note: Overhead rate as per (a) is $0.75 per hour. By applying this rate for job 325, we can calculate manufacturing overhead for job 325 i.e., 2000 hours*$0.75= $1500

(c) Applied overhead for the company:

= Predetermined overhead rate* actual hours

=$0.75*94000 hours

=$70500

Actual overhead= $72000

Applied overhead is less than actual overhead. Therefore, The overhead is under applied

Underapplied overhead= Actual overhead- Applied overhead

=$72000-$70500

=$1500 Underapplied overhead

(d) Computation of Gross profit for Job 325:

	Revenue	$15000
Less:	Direct Material	($5500)
Less:	Direct Labour	($2300)
Less:	Manufacturing overhead (2000 hours*$0.75)	($1500)
	Gross Profit	$5700

ekkarill92 answered 1 year ago

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