Innovative Metal Products Company manufactures pipes and applies manufacturing c
ID: 2575679 • Letter: I
Question
Innovative Metal Products Company manufactures pipes and applies manufacturing costs to production at a budgeted indirect-cost rate of $12 per direct labor-hour. The following data are obtained from the accounting records for June 2018: Direct materials Direct labor (16,000 hours @ $11/hour) Indirect labor Plant facility rent Depreciation on plant machinery and equipment 42,000 Sales commissions Administrative expenses $400,000 240,000 $25,000 $ 100,000 $30,000 $ 40,000 Required: a. What actual amount of manufacturing overhead costs was incurred during June 2018? b. What amount of manufacturing overhead was allocated to all jobs during June 2018? c. For June 2018, was manufacturing overhead underallocated or overallocated? Explain.Explanation / Answer
Solution:
Overhead costs are the indirect expenses which incurred on production department. It includes indirect labor, production facility rent and depreciation expenses incurred on factory production department.
Note - -Sales commission and administrative expenses are not production overheads.
Part 1 --- Actual manufacturing overhead
Actual Overhead Cost
Indirect labor
$25,000
Plant Facility Rent
$100,000
Depreciation on Plant Machinery and Equipment
$42,000
Actual manufacturing overhead costs
$167,000
Part 2 ---
Allocated Manufacturing Overhead = Total Direct labor hours x Indirect Cost Rate
= 16,000 hours x $12
= $192,000
Part 3 --- Over or Under Applied Overhead Calculation
Actual Manufacturing Overhead incurred during the period = $167,000
Allocated or Applied Manufacturing Overhead = $192,000
Since the allocated manufacturing overheads are higher than actual manufacturing overhead, it means overheads are over applied.
Over Applied Overheads = 192,000 – 167,000 = $25,000
$25,000 Overheads are Over Applied.
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Actual Overhead Cost
Indirect labor
$25,000
Plant Facility Rent
$100,000
Depreciation on Plant Machinery and Equipment
$42,000
Actual manufacturing overhead costs
$167,000