Question

Amberjack Company is trying to decide on an allocation base to use to assign manufacturing overhead...

1. Based on Direct labour hours

= \$584,000/15,500

=\$37.68

b. Applied manufacturing overhead = Actual labour hours * Predetermined Overhead rate

= 17,000 * 37.68

= \$640,560

= \$645,000 - \$640,560

Under applied manufacturing overhead = \$4,440

2. Based on Direct labour dollars

a. Predetermined Overhead rate = Estimated manufacturing overhead/ Estimated direct labour cost

= \$584,000/\$386,000

= \$1.51

b. Applied manufacturing overhead = Actual direct labour cost * Predetermined Overhead rate

= \$440,000* \$1.51

= \$664,400

=\$645,000 - \$664,400

Over applied manufacturing overhead = \$19,400

3.Based on Machine hours:

= \$584,000/6,500

= \$89.85

b. Applied manufacturing overhead = Actual machine hours * Predetermined Overhead rate

= 7,500*\$89.85

= \$673,875

=\$645,000 - \$673,875

Over applied manufacturing overhead = \$28,875

4. Based on last year data, Direct Labour hours as a base is the most accurate measure for applying manufacturing overhead.

Summary

 1a. Predetermined Overhead rate \$37.68 per direct labour hour 1b. Applied manufacturing overhead \$640,560 1c. Manufacturing overhead- under applied \$4,440 2a. Predetermined Overhead rate \$1.51 % of direct labour cost 2b. Applied manufacturing overhead \$664,400 2c. Manufacturing overhead -over applied \$19,400 3a. Predetermined Overhead rate \$89.95 per machine hour 3b. Applied manufacturing overhead \$673,875 3c. Manufacturing overhead -over applied \$28,875 4 Most accurate measure Direct labour hours

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