Manufacturing Overhead Example
Problem 1
Brentwood Associates uses a job-order costing system and applies overhead on the basis of direct labor hours. At the beginning of the year, management estimated that 26,000 direct labor hours would be worked and $1,300,000 of manufacturing overhead costs would be incurred.
During the year, the company actually worked 24,000 direct labor hours and incurred the following manufacturing costs:
Direct materials used in production
$1,240,000
Direct labor
1,800,000
Indirect labor
280,000
Indirect materials
220,000
Insurance
150,000
Utilities
190,000
Repairs and Maintentance
180,000
Depreciation
320,000
Required:
1.
Calculate the predetermined overhead application rate for the year.
2.
Determine the amount of manufacturing overhead applied to work in process during the year.
3.
Determine the amount of underapplied or overapplied overhead for the year.
Solution Problem 1
1.
Calculate the predetermined overhead application rate for the year.
The predetermined overhead rate is budgeted overhead/budgeted direct labor hours.
$1,300,000/26,000 = $50
2.
Determine the amount of manufacturing overhead applied to work in process during the year.
The amount of overhead applied would be the POR calculated in part 1 times the actual number of direct labor hours.
$50 x 24,000 = $1,200,000
3.
Determine the amount of underapplied or overapplied overhead for the year.
The overhead variance is calculated by comparing the actual overhead to the applied overhead.
The actual overhead was Indirect labor $280,000 + Indirect materials $220,000 + Insurance $150,000 + Utilities $190,000 + Repairs and Maintenance $180,000 + Depreciation $320,000 or $1,340,000.
Actual Overhead $1,340,000 minus Applied overhead $1,200,000 = Underapplied overhead of $140,000.
Problem 2
The Mahoney Company has two producing departments: assembly and finishing. The company has been using a plantwide predetermined overhead rate based on direct labor hours. The following estimates were made
Brentwood Associates uses a job-order costing system and applies overhead on the basis of direct labor hours. At the beginning of the year, management estimated that 26,000 direct labor hours would be worked and $1,300,000 of manufacturing overhead costs would be incurred.
During the year, the company actually worked 24,000 direct labor hours and incurred the following manufacturing costs:
Direct materials used in production
$1,240,000
Direct labor
1,800,000
Indirect labor
280,000
Indirect materials
220,000
Insurance
150,000
Utilities
190,000
Repairs and Maintentance
180,000
Depreciation
320,000
Required:
1.
Calculate the predetermined overhead application rate for the year.
2.
Determine the amount of manufacturing overhead applied to work in process during the year.
3.
Determine the amount of underapplied or overapplied overhead for the year.
Solution Problem 1
1.
Calculate the predetermined overhead application rate for the year.
The predetermined overhead rate is budgeted overhead/budgeted direct labor hours.
$1,300,000/26,000 = $50
2.
Determine the amount of manufacturing overhead applied to work in process during the year.
The amount of overhead applied would be the POR calculated in part 1 times the actual number of direct labor hours.
$50 x 24,000 = $1,200,000
3.
Determine the amount of underapplied or overapplied overhead for the year.
The overhead variance is calculated by comparing the actual overhead to the applied overhead.
The actual overhead was Indirect labor $280,000 + Indirect materials $220,000 + Insurance $150,000 + Utilities $190,000 + Repairs and Maintenance $180,000 + Depreciation $320,000 or $1,340,000.
Actual Overhead $1,340,000 minus Applied overhead $1,200,000 = Underapplied overhead of $140,000.
Problem 2
The Mahoney Company has two producing departments: assembly and finishing. The company has been using a plantwide predetermined overhead rate based on direct labor hours. The following estimates were made