Question

please answer this question fully

Amberjack Company is trying to decide on an allocation base to use to assign manufacturing overhead to jobs. The company has always used direct labor hours to assign manufacturing overhead to products, but it is trying to decide whether it should use a different allocation base such as direct labor dollars or machine hours.

Actual and estimated data for manufacturing overhead, direct labor cost, direct labor hours, and machine hours for the most recent fiscal year are summarized here:

	Estimated Value				Actual Value
Manufacturing overhead cost	$	594,000			$	655,000
Direct labor cost	$	396,000			$	450,000
Direct labor hours		16,500	hours			18,000	hours
Machine hours		7,500	hours			8,500	hours

Required:
1. Based on the company’s current allocation base (direct labor hours), compute the following:
    
    a. Predetermined overhead rate. (Round your answer to 2 decimal places.)

    b. Applied manufacturing overhead.

    c. Over- or underapplied manufacturing overhead.

2. If the company had used direct labor dollars (instead of direct labor hours) as its allocation base, compute the following:

    a. Predetermined overhead rate.

    b. Applied manufacturing overhead.

    c. Over- or underapplied manufacturing overhead.

3. If the company had used machine hours (instead of direct labor hours) as its allocation base, compute the following:

    a. Predetermined overhead rate. (Round your answer to 2 decimal places.)

    b. Applied manufacturing overhead.

    c. Over- or underapplied manufacturing overhead.

4. Based on last year’s data alone, which allocation base would have provided the most accurate measure for applying manufacturing overhead costs to production?

   

Answer 1

Based on Direct labour hours. a predetermined overhead rate = Estimated Manufacturing Overhead. Estimated labour hours = 594,000 16,500 = $36 (6) Applied manufacturing Overhead. Actual labour hours = 18000 hrs. predetermined overhead rate = $36. = 18000 836 =$648,000 Over cop under applied manufacturing overhead (c) Actual Manufacturing Overhead = $655,000 lesso Applied manufacturing overhead (648,000) under applied overhead $2,000

& Based on Direct labour Dollarsi a predetermined Overhead datec Istimated Manufacturing - Overhead Direct labar cost 594000 396000 51.50 Applied manufacturing over head. predetermined Overhead rate= $115 Direct labour cost = $ 450,000 Applied manufacturing overhead = 400000x1.5 = $ 625000 (6 Over en under applied overhead Actual Manufacting Overhead = 655,000 ress: Applied manufacturing overhada = (675,000) Over applied manufacturing $ 20,000) Overhead

③ Based on machine hours. (a predetermined rate = 594000 Əs00 $1848 D4 = $79.20 6 Applied manufacturing overhead Actual Machine hours = 8500 hrs predetermined rate = #21012 $79.2 Applied manufacturing overt red manufacturing overhead = 8500 X29-2 = 673200 (C) Over or under applied Actual overhead = Applied overhead = 655,000 (673200) lesso Over applied overhead = (18200) 6 Based on last years data. Disect labour hours as a base is the most accusate measure for applying manufacturing overhead