Question

Brooks Foundry in Altanta, Georgia, uses a predetermined manufacturing overhead rate to allocate overhead to individual jobs based on the machine hours required. At the beginning of the year, the company expected to incur the following:

Manufacturing overhead costs . . . . . . . $ 610,000

Direct labor cost . . . . . . . . . . . . . . . . . . . $ 1,400,000

Machine hours . . . . . . . . . . . . . . . . . . . . . . 76,250 hours

At the end of the year, the company had actually incurred the following:

Direct labor cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,190,000

Depreciation on manufacturing plant and equipment . . $ 495,000

Property taxes on plant . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,500

Sales salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,000

Delivery drivers' wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,500

Plant janitors' wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,500

Machine hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,500 hours

Requirements:

1. Compute Brooks' predetermined manufacturing overhead rate.

2. How much manufacturing overhead was allocated to jobs during the year?

3. How much manufacturing overhead was incurred during the year? Is manufacturing overhead underallocated or overallocated at the end of the year? By how much?

4. Were the jobs overcosted or undercosted? By how much?

Answer 1

Requirement -1

Predetermine Overhead Rate= Manufacturing Overhead Cost/ Machine Hour

=$610000/76250 Hour= $8/ Machine Hour

Requirement -2

Manufacturing Overhead Allocated= Predetermine OH rate X Actual Machine Hour

=$8 per Machine Hour X 53500 Machine Hour= $428000

Requirement -3
Computation of Manufacturing overhead incurred during the year
Particular	Amount
Depreciation on manufacturing plant and equipment	$495,000.00
Property taxes on plant	$19,500.00
Plant janitors wages	$9,500.00
Total manufacturing overhead	$524,000.00
Manufacturing overhead was Under allocated at the end of the year by $96000 (428000-524000)

Requirement -4

Jobs were under-costed as direct labour hours and manufacturing overhead both were less.

Computation of Job undercosted by
Expected Labour Cost	$1,400,000.00
Actual Labour Cost	$1,190,000.00
Difference in Labour Cost (a)	$210,000.00
Expected Overhead	$610,000.00
Overhead Actual	$524,000.00
Difference in Overhead (b)	$86,000.00
Job under costed by (a+b)=$296000