Question

Morton Company's budgeted variable manufacturing overhead is $2.50 per direct labor-hour and its budgeted fixed manufacturing overhead is $360,000 per year. The company manufactures a single product whose standard direct labor-hours per unit is 3.5 hours. The standard direct labor wage rate is $10 per hour. The standards also allow 2 feet of raw material per unit at a standard cost of $6 per foot. Although normal activity is 72,000 direct labor-hours each year, the company expects to operate at a 50,000-hour level of activity this year. Required: 1. Assume that the company chooses 50,000 direct labor-hours as the denominator level of activity. Compute the predetermined overhead rate, breaking it down into variable and fixed cost elements. 2. Assume that the company chooses 72,000 direct labor-hours as the denominator level of activity. Compute the predetermined overhead rate, breaking it down into variable and fixed cost elements. 3. Complete two standard cost cards for 50,000 & 72.000 DLHS. 4. Assume that the company actually produces 18,100 units and works 67,000 direct labor-hours during the year. Actual manufacturing overhead costs for the year are: Variable manufacturing overhead cost Fixed manufacturing overhead cost Total manufacturing overhead cost $ 169,300 369,400 $ 538,700 a. Compute the standard direct labor-hours allowed for this year's production. b. Complete the Manufacturing Overhead T-account below. Assume that the company uses 50,000 direct labor-hours (normal activity) as the denominator activity figure in computing predetermined overhead rates, as you have done in (1) above. c. Assume that the company uses 50,000 direct labor-hours (normal activity) as the denominator activity figure in computing predetermined overhead rates, as you have done in requirement (1).

Just need the Manufacturing Overhead, Is this correct way to set it up?

Answer 1

As desired, the Manufacturing overhead account is as under:
Manufacturing Overhead Account
DEBIT	Amount $	CREDIT	Amount $
Variable Manufacturing cost	169300	WIP - overhead applied	649900		(67000 * 9.70)
Fixed manufacturing cost	369400
Over-applied overhead	111200
Total	649900	Total	649900