Concept explainers
(1)
Predetermined factory overhead rate
Normally,
To Calculate: The predetermined factory overhead rate for each alternative base for M Industries.
(1)
Answer to Problem 19.5CP
The predetermined overhead rate for alternative activity base is prepared as follows:
Direct labor cost:
Machine hours:
Working notes:
Total overhead for (2012 – 2016) is calculated as follows:
Factory Overhead (Actual) | Amount ($) |
2012 | 790,000 |
2013 | 870,000 |
2014 | 935,000 |
2015 | 845,000 |
2016 | 760,000 |
4,200,000 |
Table (1)
Total direct labor cost, (2012 – 2016) is computed as below:
Direct labor cost | Amount ($) |
2012 | 3,885,000 |
2013 | 4,410,000 |
2014 | 4,620,000 |
2015 | 4,200,000 |
2016 | 3,885,000 |
21,000,000 |
Table (2)
Total machine hours, (2012 – 2016) is computed as follows:
Machine hours | Hours |
2012 | 93,000 |
2013 | 104,000 |
2014 | 111,000 |
2015 | 100,400 |
2016 | 91,600 |
500,000 |
Table (3)
Explanation of Solution
The total factory overhead is calculated by totaling all year’s actual overhead incurred in production. There are two activity bases. One is direct labor cost and another is machine hours. The total direct labor cost is determined by adding all year’s direct labor cost incurred. The total machine hours spent is determined by adding all year’s machine hours.
The predetermined overhead rate for direct labor cost is 20% of direct labor cost and predetermined overhead rate for machine hours is$8.40 per machine hour.
(2)
The over- or under applied overhead based on two predetermined overhead rates.
(2)
Answer to Problem 19.5CP
Actual Overhead ($) | Applied Overhead ($) | (Over-) underapplied ($) | ||
(a) | (b) | (c) = (a) – (b) | ||
2016 | Direct Labor cost | 790,000 | 777,000 (1) | 13,000 |
Machine Hours | 790,000 | 781,200 (6) | 8,800 | |
2015 | Direct Labor cost | 870,000 | 882,000 (2) | (12,000) |
Machine Hours | 870,000 | 873,600 (7) | (3,600) | |
2014 | Direct Labor cost | 935,000 | 924,000 (3) | 11,000 |
Machine Hours | 935,000 | 932,400 (8) | 2,600 | |
2013 | Direct Labor cost | 845,000 | 840,000 (4) | 5,000 |
Machine Hours | 845,000 | 843,360 (9) | 1,640 | |
2012 | Direct Labor cost | 760,000 | 777,000 (5) | (17,000) |
Machine Hours | 760,000 | 769,440 (10) | (9,440) |
Table (4)
Working note:
The applied overhead for direct labor activity base is calculated as follows:
The applied overhead for machine hour’s activity base is calculated as follows:
Explanation of Solution
When actual overhead incurred is less than applied overhead, the overhead is said to be overapplied. Alternatively, when actual overhead incurred is greater than applied overhead, the overhead is said to be under applied.
(3)
To Discuss: In applying the best predetermined overhead rate as computed.
(3)
Explanation of Solution
The best predetermined overhead rate is machine hours. The total overhead applied is based on both machine hours and direct labor cost. The over- or underapplied overhead ranges from $9,440 (Overapplied) to $8,800 (Underapplied) when the rates are based on machine hours. The over- or underapplied overhead ranges from $17,000 (Overapplied) to $13,000 (Underapplied) when the rates are based on machine hours.
When comparing both, we could see less fluctuation in under or over applied overhead based on predetermined overhead rate based on machine hours in the year by year basis.
Want to see more full solutions like this?
Chapter 19 Solutions
Accounting (Text Only)
- Which of the following is not a reason to allocate overhead? Some overhead costs are seasonal and should be spread over production for the entire year. Unlike direct materials and direct labor, the amount of overhead actually incurred may not be known at the time a job is being worked on. Allocation is more accurate than tracing items directly to jobs. Manufacturing overhead is an indirect cost that cannot be physically or economically traced back to a specific item.arrow_forwardA company uses job-order costing with manufacturing overhead (MOH) applied on the basis of machine hours (MHs). In the past, the company's pre-determined overhead rate (POHR) has fluctuated from period to period due primarily to differences in the expected usage of their machine. For this period, the machine has a capacity of 450 MHs, but based on anticipated production, only 375 MHs are expected to be required. The company's MOH is relatively fixed, estimated at $11,250 for both levels of MHs. At the end of the period, actual production used 413 MHs and total actual MOH amounted to $10.500. 1. How much less MOH would be applied during the month using capacity MHs rather than the traditional method?arrow_forwardA company uses job-order costing with manufacturing overhead (MOH) applied on the basis of machine hours (MHS). In the past, the company's pre- determined overhead rate (POHR) has fluctuated from period to period due primarily to differences in the expected usage of their machine. For this period, the machine has a capacity of 450 MHs, but based on anticipated production, only 375 MHs are expected to be required. The company's MOH is relatively fixed, estimated at $11,250 for both levels of MHs. At the end of the period, actual production used 386 MHs and total actual MOH amounted to $10,500. How much less MOH would be applied during the month using capacity MHs rather than the traditional method? Multiple Choice $772 less applied to MOH using capacity. None of the answers are correct $1358 less applied to MOH using capacity. $1,930 less applied to MOH using capacity $1,544 less applied to MOH using capacityarrow_forward
- Jackson Foundry in Columbus, Ohio, uses a predetermined manufacturing overhead rate to allocate overhead to individual jobs based on the machine hours required. At the beginning of the year, the company expected to incur the following: (Click the icon to view the costs.) Read the potrement Requirement 1. Compute Jackson's predetermined manufacturing overhead rate. Determine the formula to calculate the predetermined overhead rate, then calculate the rate Predetermined overhead ratearrow_forwardProblem Factory overhead rate and application. Faye Company produces electric hairdryers. Because variable overhead expense is closely related to hours worked, the company uses the direct labor hours method of applying factory overhead. The following data pertain to a recent accounting period: [IMAGE] Required: Determine the following: (1) The predetermined factory overhead rate. (2) The applied factory overhead. (3) The over- or underapplied factory overhead.arrow_forwardEthics and the Manager Terri Ronsin had recently been transferred to the Home Security Systems Division of National Home Products. Shortly after taking over her new position as divisional controller, she was asked to develop the division’s predetermined overhead rate for the upcoming year. The accuracy of the rate is important because it is used throughout the year and any underapplied or overapplied overhead is closed out to Cost of Goods Sold at the end of the year. National Home Products uses direct labor-hours in all of its divisions as the allocation base for manufacturing overhead. To compute the predetermined overhead rate, Terri divided her estimate of the total manufacturing overhead for the coming year by the production manager’s estimate of the total direct labor-hours for the coming year. She took her computations to the division’s general manager for approval but was quite surprised when he suggested a modification in the allocation base. Her conversation with the general…arrow_forward
- Smith Foundry in Columbus, Ohio, uses a predetermined manufacturing overhead rate to allocate overhead to individual jobs based on the machine hours required. At the beginning of the year, the company expected to incur the following: At the end of the year, the company had actually incurred the following: Requirements Compute Smith’s predetermined manufacturing overhead rate. How much manufacturing overhead was allocated to jobs during the year? How much manufacturing overhead was incurred during the year? Is manufacturing overhead underallocated or overallocated at the end of the year? By how much? Were the jobs overcosted or undercosted? By how much?arrow_forwardCarver Company uses a plantwide overhead rate based on direct labor costs. Suppose that Carver raises its wage rate for direct labor during the year. How would that affect the overhead applied? The total cost of jobs?arrow_forward9 Patterson, Inc. uses job-order costing with manufacturing overhead (MOH) applied on the basis of machine hours (MHS). In the past, the company's pre-determined overhead rate (POHR) has fluctuated from period to period due primarily to differences in expected usage of their machine. For the coming month, the controller would like to investigate using capacity in determining the application of overhead to jobs. For the period, the machine can operate at a capacity of 320 MHs, however, based on expected production, it is estimated that only 290 MHs will be required. MOH is relatively fixed for the company and is estimated to be $11,600 at both of these levels of MHs. At the end of the period, the controller found that production used 292 MHs and actual MOH totaled $11,745. How much less MOH would be applied during the month using capacity MHs rather than the traditional method? A. S 1.241.00 less applied to MOH using capacity. B. S 1,087.50 less applied to MOH using capacity. 4 C. D. E.…arrow_forward
- Select the correct answer The predetermined manufacturing overhead rate is usually computed: A) During the financial year B) When overheads have been incurred C)At the beginning of financial year D)At the end of financial year. The traditional cost drivers used in computing overhead absorption rates are: A)Direct labor hours, machine hours, direct labor costs B)Direct labor hours, machine costs, direct labor cost C)Floor space, rent & rates, machinery value D)Direct labor costs, machine hours, factory overhead. Overheads applied are calculated by: A)Cost driver divided by the OAR B)Budgeted production overheads divided by the budgeted cost driver activity C)OAR times the actual cost driver activity D)OAR times the estimated cost driver activity. Under allocated manufacturing overhead costs are always the result of which of the following situations. A)Estimated overhead costs are greater than actual overhead costs B)Applied overhead costs are less than actual overhead costs…arrow_forwardIn job-order costing, all of the following statements are correct with respect to labor time and cost except: Multiple Choice time tickets are kept by employees showing the amount of work on specific jobs. the job cost sheet for a job will contain all direct labor charges to that particular job. labor cost that can be traced to a job only with a great deal of effort is treated as part of manufacturing overhead. a machine operator performing routine annual maintenance work on a piece of equipment would charge the maintenance time to a specific job.arrow_forwardSelected cost data for Aerial Co for the year are as follows: Estimated overhead cost for the year Estimated direct labor cost for the year Actual manufacturing overhead cost for the year Actual direct labor cost for the year Aerial Co uses direct labor to apply overhead to jobs. What is the over or under applied overhead for this year? Do not round the predetermined rate -- only round the last computation. Enter over applied as a positive amount and under applied as a negative amount. Round to the nearest whole number, omit commas and dollar signs. Your Answer: $ 150,000 $ 81,000 $ 164,000 $ 76,000 1 Answerarrow_forward
- Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubCornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningPrinciples of Cost AccountingAccountingISBN:9781305087408Author:Edward J. Vanderbeck, Maria R. MitchellPublisher:Cengage Learning
- Financial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax CollegeSurvey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage Learning