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1 December, 13:58

Southern Rim Parts estimates its manufacturing overhead to be $454,500 and its direct labor costs to be $1,010,000 for year 1. The first three jobs that Southern Rim worked on had actual direct labor costs of $60,000 for Job 301, $85,000 for Job 302, and $150,000 for Job 303. For the year, actual manufacturing overhead was $424,000 and total direct labor cost was $839,000. Manufacturing overhead is applied to jobs on the basis of direct labor costs using predetermined rates.

Required:

a. How much overhead was assigned to each of the three jobs, 301, 302, and 303?

b. What was the over - or underapplied manufacturing overhead for year 1?

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Answers (1)
  1. 1 December, 15:32
    0
    a) Assigned overheads

    $

    Job 301 = 45% * $60,000 = 27000

    Job 302 = 45% * $85,000 = 38,250

    Job 303 = 45% * $150,000 = 67,500

    b) Under - applied overheads = $291,250.00

    Explanation:

    Assigned overheads = Overhead absorption rate (OAR) * actual labour cost

    OAR = (Estimated overheads for the period / Estimated labour cost) * 100

    = $$454,500 / $1,010,000 * 100

    = 45% of labour cost

    Assigned overheads

    Job 301 = 45% * $60,000 = 27,000

    Job 302 = 45% * $85,000 = 38,250

    Job 303 = 45% * $150,000 = 67,500

    b) Determine the over or under absorbed overhead

    Under-applied or over applied-overhead is the difference between absorbed overhead and the actual overhead.

    = Absorbed overhead - actual overhead

    = (127,000 + 38,250 + 67,500) - $ 424,000

    Under - applied overheads = $291,250.00
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