Question

3. Landis Company uses a job order cost system in each of its two manufacturing departments. Manufacturing overhead is applied to jobs on the basis of direct labor cost in Department A and machine hours in Department B. In establishing the predetermined overhead rates for 2017, the following estimates were made for the year. Department Manufacturing overhead Direct labor cost Direct labor hours Machine hours $2,100,000 1,500,000 100,000 200,000 $1,400,000 1.200,000 100,000 400,000 During March, the job cost sheet showed the following costs and production data Department Direct materials used Direct labor cost Manufacturing overhead incurred Direct labor hours Machine hours $165,000 105.000 130,000 8,000 16.000 $188.000 110.000 135,000 8.400 33.000 Instructions (a) Compute the predetermined overhead rate for each department. (b) Compute the total manufacturing cost assigned to jobs in March in each department (c) Compute the balance in the Manufacturing Overhead account at the end of March and indicate whether overhead is over or underapplied.

Answer 1

a) Predetermined overhead rate:
	Dept. A	Dept. B
Manufacturing overheads (a)	$2,100,000	$1,400,000
Direct labor cost (b)	$1,500,000
Machine hours (c )		400,000
Predetermined Overhead Rate (a / b * 100)	140%
Predetermined Overhead Rate (a / c)		$3.50
b) Total manufacturing costs assigned to Jobs:	Dept. A	Dept. B
Direct materials used	$165,000	$188,000
Direct labor cost	$105,000	$110,000
Manufacturing overheads based on predetermined overhead rate ($1,500,000*140/100); (33,000 * $3.50 per machine hour)	$147,000	$115,500
Total Manufacturing Cost	$417,000	$413,500
c)
	Dept. A	Dept. B
Actual manufacturing costs incurred (a)	$130,000	$135,000
Manufacturing overheads applied based (b)	$147,000	$115,000
Balance in manufacturing Overhead (a - b)	($17,000)	$20,000
Overapplied/Underapplied	Overapplied	Underapplied
When applied overheads are more than the actual overheads incurred then it is called Overheads are overapplied and when applied overheads are less than the actual overheads incurred then it is called underapplied overheads.