Question

Exercise 186 (Part Level Submission) Klinger Company estimates that annual manufacturing overhead costs will be $4,800,000 for 2017. The actual overhead costs at the end of 2017 are $4,980,000. Activity base information for 2017 follows: Estimated Actual Activity Base Direct Labor Cost $%3,000,000 נוǐre:1 í l.ilbor lleturs冰)(),(DEH) Machine Hours $3,150,000 000 212.tXW) 212,000 150,000 152,000 Compute the predetermined overhead rate for each activity base. Direct labor cost Direct labor hours per hour Machine hours per machine hour

Answer 1

(a) Computation of predetermined overhead rate for each level of activity:

Direct labor cost = Estimated annual manufacturing overhead cost / Estimated direct labor cost

                           = $4,800,000 / $3,000,000

                           = 1.60

Direct labor hour = Estimated annual manufacturing overhead cost / Estimated direct labor hour

                            =$4,800,000 / 200,000 hours

                            = $24 per hour

Machine hours    = Estimated annual manufacturing overhead cost / Estimated machine hour

                            = $4,800,000 / 150,000 hours

                            = $32 per machine hour

(b) Computation for amount of overhead applied in 2017 for each activity base:

Direct labor cost = Actual direct labor cost x Overhead rate for direct labor cost

                              = $3,150,000 x 1.60

                              = $5,040,000

Direct labor hour   = Actual direct labor hours x Overhead rate for direct labor hour

                              = 212,000 x $24

                              = $5,088,000

Machine hour        = Actual machine hours x Overhead rate for machine hour

                              = 152,000 x $32

                              = $4,864,000