Problem 15-4A Agassi Company uses a job order cost system in each of its three m
ID: 2425175 • Letter: P
Question
Problem 15-4A Agassi Company uses a job order cost system in each of its three manufacturing departments. Manufacturing overhead is applied to jobs on the basis of direct labor cost in Department D, direct labor hours in Department E, and machine hours in Department K. In establishing the predetermined overhead rates for 2014, the following estimates were made for the year. Department Manufacturing overhead Direct labor costs Direct labor hours Machine hours During January, the job cost sheets showed the following costs and production data 1,200,000 1,500,000 900,000 1,500,000 1,250,000 450,000 40,000 500,000 120,000 100,000 400,000 125,000 Direct materials used 140,000 126,000 78,000 Direct labor costs 120,000 110,000 37,500 Manufacturing overhead 99,000 124,000 incurred Direct labor hours Machine hours 8,000 34,000 79,000 3,500 45,000 10,400 11,000Explanation / Answer
1).It is given in question that Department D will charge on the basis of direct labour costs, on the basis of direct labour hours in department E, on the basis of machine hours in department K.
Calculation of predetermined OH rate for each Department :
For Department D:
= manufacturing OH / Direct labour costs
= 1200000 / 1500000 = 0.8
For Department E:
= manufacturing OH / Direct labour hours
=1500000 /125000
= 12
For Department K:
= manufacturing OH / Machine hours
=900000 / 120000
= 7.5
Calculation of total manufacturing costs assigned to jobs in each department during January :
OH assigned = Basis of OH * Predetermined rate per basis
For Department D:
= Direct labour Costs * Predetermined rate of OH per direct labour cost
= 120000 * 0.8 = $96000
For Department E
= Direct labour Hours * Predetermined rate of OH per direct labour hour
= 11000 * 12 = $132000
For Department K
= Machine Hours * predetermined rate of OH per machine hour
= 10400 * 7.50
= $78000
Calculation of under /over applied OH during january:
= Actual Overdead - Overheads Charged during month using predetermined.
For Department D
= 99000 - 96000 = $3000 (over applied)
For Department E
= 124000 - 132000 = ( $8000) (Over applied)
For Department K
= 79000 - 78000 = $1000 ( under applied)