Problem 15-4A Agassi Company uses a job order cost system in each of its three m
ID: 2468364 • 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
D
E
K
Department
D
E
K
Manufacturing Costs
Manufacturing Overhead
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
D
E
K
Manufacturing overhead $ 1,200,000 $ 1,500,000 $ 900,000 Direct labor costs $ 1,500,000 $ 1,250,000 $ 450,000 Direct labor hours 100,000 125,000 40,000 Machine hours 400,000 500,000 120,000During January, the job cost sheets showed the following costs and production data.
Department
D
E
K
Direct materials used $ 140,000 $ 126,000 $ 78,000 Direct labor costs $ 120,000 $ 110,000 $ 37,500 Manufacturing overhead incurred $ 99,000 $ 124,000 $ 79,000 Direct labor hours 8,000 11,000 3,500 Machine hours 34,000 45,000 10,400
Explanation / Answer
Solution:
It is given in the question that overhead is applied to jobs on the basis of following:
Direct labor cost in Department D
Direct labor hours in Department E
Machine hours in Department K
Calculation of Predetermined Rate for each department
Predetermined Overhead Rate = Total Estimated Manufacturing Overhead / Given Basis
Department D = $ 1,200,000 / $ 1,500,000 = $0.80 or 80% on direct labor cost
Department E = $ 1,500,000 / 125,000 = $12 per direct labor hour
Department K = $ 900,000 / 120,000 = $7.50 per machine hour
Calculation of the total manufacturing costs assigned to jobs in January in each department.
Department D = Actual Direct Labor Cost x Predetermined Overhead Rate = $120,000 x 80% = $96,000
Department E = Actual Direct Labor Hours x Predetermined Overhead Rate = 11,000 x $12 = $132,000
Department K = Actual Machine Hours x Predetermined Overhead Rate =10,400 x $7.50 = $78,000
Calculation of the under- or overapplied overhead for each department at January 31
Departments
Assigned / Applied Manufacturing Costs
Actual Incurred Manufacturing Overheads
Under-Applied / Over-applied Overhead
D
$96,000
$99,000
$3,000 Under-applied
E
$132,000
$124,000
$8,000 Over-applied
K
$78,000
$79,000
$1,000 Under-applied
Overheads are under-applied when estimated overheads are less than Actual overhead incurred.
Overheads are over-applied when estimated overheads are higher than Actual overhead incurred.
Departments
Assigned / Applied Manufacturing Costs
Actual Incurred Manufacturing Overheads
Under-Applied / Over-applied Overhead
D
$96,000
$99,000
$3,000 Under-applied
E
$132,000
$124,000
$8,000 Over-applied
K
$78,000
$79,000
$1,000 Under-applied