The company uses a job order cost system and computes

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processes: mixing, shaping, and firing. The company uses a job order cost system and computes a predetermined overhead rate in each department. The mixing department bases its rate on direct materials, the shaping department bases its rate on machine hours, and the firing department bases its rate on direct labor hours. At the beginning of the year, the company made the following estimates: Department Mixing Shaping Firing Direct labor hours 80,000 45,000 60,000 Machine hours 30,000 70,000 21,000 Direct materials $300,000 $ 40,000 $15,000 Manufacturing overhead $150,000 $140,000 $75,000 a. Compute the predetermined overhead rate to be used in each department during the upcoming year. b. Assume the overhead rates that you computed in a. above are in effect. Compute the total overhead cost to be assigned to Dr. Snout's order—Job #5417, assuming the following data: Department Mixing Shaping Firing Direct labor hours 300 80 92 Machine hours 80 120 120 Direct materials $6,000 $120 $300 c. If actual overhead incurred totaled $3,500, compute the amount of over- or underapplied manufacturing overhead. Solution 124 (15–20 min.) a. Mixing — $150,000 ÷ $300,000 direct materials = 50% of direct materials Shaping — $140,000 ÷ 70,000 machine hours = $2.00 per machine hour Firing — $75,000 ÷ 60,000 direct labor hours = $1.25 per direct labor hour b. Overhead in Dr. Snout's order: Mixing — $6,000 direct materials × 50% = $3,000 Shaping — 120 machine hours × $2.00 = 240 Firing — 92 direct labor hours × $1.25 = 115 Total overhead = $3,355 c. Actual overhead $3,500 compared to applied overhead $3,355 = $145 underapplied overhead 2- 3 0
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Job Order Cost Accounting Ex. 125 Landis Company uses a job order cost system in each of its two manufacturing departments. Manufacturing overhead is applied to jobs on the basis of direct labor cost in Department A and machine hours in Department B. In establishing the predetermined overhead rates for 2002, the following estimates were made for the year: Department A B Manufacturing overhead $2,100,000 $1,600,000 Direct labor cost 1,200,000 1,200,000 Direct labor hours 100,000 100,000 Machine hours 200,000 400,000 During January, the job cost sheet showed the following costs and production data: Department A B Direct materials used $195,000 $128,000 Direct labor cost 100,000 110,000 Manufacturing overhead incurred 180,000 135,000 Direct labor hours 8,000 8,400 Machine hours 16,000 34,000 Instructions (a) Compute the predetermined overhead rate for each department. (b) Compute the total manufacturing cost assigned to jobs in January in each department. (c) Compute the balance in the Manufacturing Overhead account at the end of January and indicate whether overhead is over- or underapplied. Solution 125 (15–20 min.) (a) Predetermined overhead rates: Department A (using direct labor cost): $2,100,000 ÷ $1,200,000 = 175% Department B (using machine hours): $1,600,000 ÷ 400,000 = $4 per machine hour (b) Total manufacturing costs by department: Department A : Direct materials $195,000 Direct labor cost 100,000 Manufacturing overhead applied ($100,000 × 175%) 175,000 Total manufacturing costs $470,000 Department B : Direct materials $128,000 Direct labor cost 110,000 Manufacturing overhead applied (34,000 hrs. × $4) 136,000 Total manufacturing costs $374,000 2- 3 1
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Test Bank for Managerial Accounting, Second Edition Solution 125 (cont.) (c) MANUFACTURING OVERHEAD Dept. A 180,000 Dept. A 175,000 Dept. B 135,000 Dept. B 136,000 315,000 311,000 Bal. Underapplied 4,000 Ex. 126 Edwards Company applies manufacturing overhead to jobs on the basis of machine hours used.
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