Chapter 03s

# Manufacturing overhead application estimated total

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Manufacturing Overhead  Application Estimated total manufacturing overhead cost for the coming period Estimated total units in the allocation base for the coming period POHR = Ideally, the allocation base is a cost driver that causes overhead.

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3-12 Using a predetermined rate makes it possible to estimate total job costs sooner. Actual overhead for the period is not known until the end of the period. The Need for a POHR
3-13 Computing Predetermined Overhead  Rates The predetermined overhead rate is computed before the period begins using a four-step process. 1. Estimate the total amount of the allocation base (the denominator) that will be required for next period’s estimated level of production. 2. Estimate the total fixed manufacturing overhead cost for the coming period and the variable manufacturing overhead cost per unit of the allocation base. 3. Use the following equation to estimate the total amount of manufacturing overhead: 4. Compute the predetermined overhead rate. Y = a + bX Where,      Y  = The estimated total manufacturing overhead cost      a  = The estimated total fixed manufacturing overhead cost       b  = The estimated variable manufacturing overhead cost            per unit of the allocation base      X  = The estimated total amount of the allocation base.

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3-14 Overhead Application Rate POHR  =   \$4.00 per direct labor-hour \$640,000 estimated total manufacturing overhead 160,000 estimated direct labor hours (DLH) POHR = PearCo estimates that it will require 160,000 direct labor-hours to meet the  coming period’s estimated production level. In addition, the company  estimates total fixed manufacturing overhead at \$200,000, and variable  manufacturing overhead costs of \$2.75 per direct labor hour. Y = a + bX Y = \$200,000 + (\$2.75 per direct labor-hour  ×  160,000 direct labor- hours) Y = \$200,000 + \$440,000 Y = \$640,000
3-15 Job-Order Cost Accounting PearCo Job Cost Sheet Job Number A - 143 Date Initiated 3-4-11 Date Completed 3-5-11 Department B3 Units Completed 2 Item Wooden cargo crate Direct Materials Direct Labor Manufacturing Overhead Req. No. Amount Ticket Hours Amount Hours Rate Amount X7-6890 116 \$ 36 8 88 \$ 8 4 \$ 32 \$ Cost Summary Units Shipped Direct Materials 116 \$ Date Number Balance Direct Labor 88 \$ Manufacturing Overhead 32 \$ Total Cost Unit Product Cost

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3-16 Job-Order Cost Accounting PearCo Job Cost Sheet Job Number A - 143 Date Initiated 3-4-11 Date Completed 3-5-11 Department B3 Units Completed 2 Item Wooden cargo crate Direct Materials Direct Labor Manufacturing Overhead Req. No. Amount Ticket Hours Amount Hours Rate Amount X7-6890 116 \$ 36 8 88 \$ 8 4 \$ 32 \$ Cost Summary Units Shipped Direct Materials 116 \$ Date Number Balance Direct Labor 88 \$ Manufacturing Overhead 32 \$ Total Cost 236 \$ Unit Product Cost
3-17 Job-Order Cost Accounting PearCo Job Cost Sheet Job Number A - 143 Date Initiated 3-4-11 Date Completed 3-5-11 Department B3 Units Completed 2 Item Wooden cargo crate Direct Materials Direct Labor

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