Question

Kody Corporation uses a job-order costing system with a plantwide overhead rate based on machine-hours. At the beginning of the year, the company made the following estimates: Machine-hours required to support estimated production Fixed manufacturing overhead cost Variable manufacturing overhead cost per machine-hour 152,000 S 655,000 $ 4.70 Required: 1. Compute the predetermined overhead rate. (Round your answer to 2 decimal places.) Predetermined overhead rate per MH 2. During the year Job 500 was started and completed. The following information was available with respect to this job: $ 390 S 280 Direct materials requisitioned Direct labor cost Machine-hours used 39 Compute the total manufacturing cost assigned to Job 500. (Round your intermediate calculations to 2 decimal places and final answer to the nearest dollar amount.) Total manufacturing cost 3-a. During the year the company worked a total of 145,200 machine-hours on all jobs and incurred actual manufacturing overhead costs of $1,308,752. What is the amount of underapplied or overapplied overhead for the year? (Input the amount as a positive value. Round your intermediate calculations to 2 decimal places and final answer to the nearest dollar amount.) Manufacturing overhead cost (Click to select) V by 3-b. If this amount were closed out entirely to Cost of Goods Sold, would the journal entry increase or decrease net operating income? Increase Decrease

Answer 1

1	Predetermined overhead rate=Total estimated manufacturing overhead/Estimated machine hours
	Total estimated manufacturing overhead=Fixed manufacturing overhead cost+Variable manufacturing overhead cost
	Variable manufacturing overhead cost=Variable manufacturing overhead cost per machine hour*Estimated machine hours=4.70*152000=$ 714400
	Total estimated manufacturing overhead=655000+714400=$ 1369400
	Predetermined overhead rate=1369400/152000=9.0092=$ 9.01 per MH
2	Total manufacturing cost:
						$
	Direct materials					390
	Direct labor cost					280
	Manufacturing overhead applied					351.39
	(Machine hours used*Predetermined OH rate)					(39*9.01)
	Total manufacturing cost					1021
3-a.	Actual manufacturing overhead cost=$ 1308752
	Manufacturing overhead applied=Machine hours used*Predetermined OH rate=145200*9.01=$ 1308252
	Manufacturing overhead applied < Actual manufacturing overhead cost,
	Hence, Overhead is under applied
	Under applied overhead=1308752-1308252=$ 500
	Manufacturing overhead cost is under-applied by $ 500
3-b.	Under-applied overhead is added to cost of goods sold.
	Hence, increased cost of goods sold will result in decrease in net operating income
	Decrease