Carlton Industries manufactures wooden backyard playground equipment. Carlton es
ID: 1149192 • Letter: C
Question
Carlton Industries manufactures wooden backyard playground equipment. Carlton estimated $1,920,000 of 1. Calculate Carlton's predetermined manufacturing overhead rate, assuming that the company uses manufacturing overhead and $2,100,000 of direct labor cost for the year. After the year was over, the accounting records indicated that the company had actually incurred $1,600,000 of manufacturing overhead and $2,450,000 of direct labor cost. direct labor cost as an allocation base 2. How much manufacturing overhead would have been allocated to manufacturing jobs during the year? 3. At year-end, was manufacturing overhead overallocated or underallocated? By how much?Explanation / Answer
Part A
Predetermined overhead rate can be calculated using the following formula:
Pre-determined overhead rate = Estimated total manufacturing overhead cost/Estimated total activity base
= $1,920,000/$2,100,000
= .9143 per direct labor
Part B
Manufacturing overhead allocated = Direct labor cost x predetermined overhead rate
= $2,450,000 x 0.9143
= $2,240,000
Part C
Actual manufacturing overhead is $1,600,000 which is lesser than allocated overhead. Therefore, the manufacturing overhead is over allocated.