Case study
1. Paulson Company uses a predetermined overhead rate based on machine hours to apply manufacturing overhead to jobs. The company has provided the following estimated costs for next year:
Paulson estimated that 40,000 direct labor hours and 20,000 machine hours would be worked during the year. The predetermined overhead rate per machine hour will be: A) $1.60. B) $2.10. C) $1.00. D) $1.05.
Answer: B) $2.10.
Manufacturing OH = Rent + Depreciation + Indirect materials + Insurance
= 13,500 + 6,500 + 10,000 + 12,000 = 42,000
Machine hrs= 20,000
Therefore POHR = 42,000 / 20,000 = $2.10
2. Which of the following would probably be the least appropriate allocation base for allocating overhead in a highly automated manufacturer of specialty valves? A) machine-hours B) power consumption C) direct labor-hours D) machine setups
Answer: C) direct labor-hours
3. Nil Co. uses a predetermined overhead rate based on direct labor cost to apply manufacturing overhead to jobs. For the year ended December 31, Nil's estimated manufacturing overhead was $600,000, based on an estimated volume of 50,000 direct labor hours, at a direct labor rate of $6.00 per hour. Actual manufacturing overhead amounted to $620,000, with actual direct labor cost of $325,000. For the year, manufacturing overhead was: A) overapplied by $20,000. B) underapplied by $22,000. C) overapplied by $30,000. D) underapplied by $30,000.
Answer: C) overapplied by $30,000.
Direct labor cost = 50,000 x $ 6 = $300,000 manufacturing overhead = $600,000
Rate = $600,000/ $300,000 = $ 2
Actual direct labor cost = $325,000
Therefore applied overhead= 325,000 x 2 =$650,000
Actual manufacturing OH=$620,000
Therefore OH over applied==$650,000 - $620,000 = $30,000
Use the following to answer question 4:
Leija Manufacturing Company uses a job-order costing system and started the month of March with one job in process (Job #359). This job
Paulson estimated that 40,000 direct labor hours and 20,000 machine hours would be worked during the year. The predetermined overhead rate per machine hour will be: A) $1.60. B) $2.10. C) $1.00. D) $1.05.
Answer: B) $2.10.
Manufacturing OH = Rent + Depreciation + Indirect materials + Insurance
= 13,500 + 6,500 + 10,000 + 12,000 = 42,000
Machine hrs= 20,000
Therefore POHR = 42,000 / 20,000 = $2.10
2. Which of the following would probably be the least appropriate allocation base for allocating overhead in a highly automated manufacturer of specialty valves? A) machine-hours B) power consumption C) direct labor-hours D) machine setups
Answer: C) direct labor-hours
3. Nil Co. uses a predetermined overhead rate based on direct labor cost to apply manufacturing overhead to jobs. For the year ended December 31, Nil's estimated manufacturing overhead was $600,000, based on an estimated volume of 50,000 direct labor hours, at a direct labor rate of $6.00 per hour. Actual manufacturing overhead amounted to $620,000, with actual direct labor cost of $325,000. For the year, manufacturing overhead was: A) overapplied by $20,000. B) underapplied by $22,000. C) overapplied by $30,000. D) underapplied by $30,000.
Answer: C) overapplied by $30,000.
Direct labor cost = 50,000 x $ 6 = $300,000 manufacturing overhead = $600,000
Rate = $600,000/ $300,000 = $ 2
Actual direct labor cost = $325,000
Therefore applied overhead= 325,000 x 2 =$650,000
Actual manufacturing OH=$620,000
Therefore OH over applied==$650,000 - $620,000 = $30,000
Use the following to answer question 4:
Leija Manufacturing Company uses a job-order costing system and started the month of March with one job in process (Job #359). This job