Question

Question 1: Porsche Racing produces custom race cars for professional race teams. To allocate manufacturing overhead to its jobs, the company uses a predetermined manufacturing overhead rate based on the number of direct labour hours. The engineers (direct labour) that work at the Porsche Racing division are paid $65/hour. At the beginning of the year Porsche Racing expected to incur the following: Manufacturing Overhead Cost: $1,400,000 Direct Labour Cost: $4,550,000 Direct Machine Hours: 30,000 At the end of the year, Porsche Racing actually incurred the following expenses: Direct labour cost: $4,387,500 Depreciation on plant and equipment: $900,000 On-track (after sale) servicing: $250,000 Plant General Manager salary: $325,000 Research and Development at Porsche HQ: $500,000 Machine hours: 28,500 A. Compute Porsche Racing's predetermined manufacturing overhead rate. 2 points

what do you mean? how do you want it?

Answer 1

A)Estimated direct labor hours =Estimated direct labor cost /cost per labor hours

                            = 4550000/ 65

                            = 70000 direct labor hours

Predetermined overhead rate =Estimated overhead /estimated direct labor hours

                               = 1400000/70000

                                = $ 20 per direct labor hours

B)

Actual direct labor hours =Actual direct labor cost /cost per labor hours

                            = 4387500/65

                           = 67500 direct labor hour

Overhead allocated to jobs =Actual direct labor hours * predetermined overhead rate

                                = 67500 *20

                                = $ 1350000

C)

Actual overhead =Depreciation on plant and equipment + plant general manager salary

                   = 900000+ 325000

                    = 1225000

**All other cost are Direct labor cost(product cost) ,selling,general and administrative cost which is a period cost

D)

Since allocated overhead is greater than actual overhead ,overhead is over-allocated .

(Over-allocated overhead) /under-allocated overhead =Actual -allocated overhead

                                                                    = 1225000 - 1350000

                                                                   = $ (125000) over-allocated