Question

Chloe Corp. uses a job order costing system with manufacturing overhead applied to products on the basis of direct labor hours. For the upcoming year, Chloe Corp. estimated total manufacturing overhead cost at $480,000 and total direct labor hours of 40,000. During the year actual manufacturing overhead incurred was $462,500 and 41,000 direct labor hours were used.

a. Calculate the predetermined overhead rate.
b. Calculate how much manufacturing overhead will be applied to production.
c. Is overhead over- or underapplied? By how much?
d. What account should be adjusted for over- or underapplied overhead? Should the balance be increased or decreased?

Answer 1

ANSWER

a) CALCULATION OF PREDETERMINED OVERHEAD RATE

Predetermined Overhead rate = Total Estimated manufacturing overhead / Total Estimated direct labour hours

Predetermined Overhead rate = $ 480,000/ $40,000

Predetermined Overhead rate = $ 12 Per Hours

Answer = $12 Per Hours

b) CALCULATION OF OVERHEAD WILL BE APPLIED TO PRODUCTION

Overhead Applied = Actual Hours of Labour * Predertermined Overhead rate per hours

Overhead Applied = 41,000 Hours * $ 12 Per hours

Overhead Applied = $ 492,000

Answer = $492,000

c) CALCULATION OF OVERHEAD UNDER OR OVER APPLIED

Actual Overhead = $462,500

Overhead Applied = $492,000

so there is excess debited to overhead expense

Overhead over applied = Overhead Applied - Actual Overhead Expenses

Overhead over applied = $ 492,000 - $462,500

Overhead over applied = $ 492,000 - $462,500

Overhead over applied = $ 29,500

Answer = Over applied overhead = $ 29,500

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