# Case study

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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.

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

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.

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

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