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20 December, 13:50

Denver Company prints custom training materials for corporations. The business was started on January 1, 2013 and uses a job-order costing system. Manufacturing overhead is applied to jobs based on prime cost (direct materials and direct labor costs). The following information is available for 2013:Estimated Manufacturing Overhead Costs : $315,000Estimated Direct Material Costs : $150,000Estimated Direct Labor Costs : $225,000Actual Direct Materials Cost : $148,500Actual Direct Labor Cost : $213,500Actual Manufacturing Overhead Cost : 318,500

Required:1. What is the under applied or overapplied overhead cost for Denver Company?

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  1. 20 December, 14:58
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    Over/under allocation = $14,420 underallocated

    Explanation:

    Giving the following information:

    Manufacturing overhead is applied to jobs based on prime cost (direct materials and direct labor costs).

    The following information is available for 2013:

    Estimated Manufacturing Overhead Costs : $315,000

    Estimated Direct Material Costs : $150,000

    Estimated Direct Labor Costs : $225,000

    Actual Direct Materials Cost : $148,500

    Actual Direct Labor Cost : $213,500

    Actual Manufacturing Overhead Cost : 318,500

    First, we need to calculate the predetermined overhead rate:

    Estimated manufacturing overhead rate = total estimated overhead costs for the period / total amount of allocation base

    Estimated manufacturing overhead rate = 315,000 / (150,000 + 225,000) = $0.84 per prime cost dollar

    Now, we can allocate overhead:

    Allocated MOH = Estimated manufacturing overhead rate * Actual amount of allocation base

    Allocated MOH = 0.84 * (148,500 + 213,500) = $304,080

    To determine under or over allocation, we need to use the following formula:

    Over/under allocation = real MOH - allocated MOH

    Over/under allocation = 318,500 - 304,080 = 14,420 underallocated
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