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Bunnell Corporation is a manufacturer that uses job-order costing. On January 1, the company’s inventory balances were as follows:

The company applies overhead cost to jobs on the basis of direct labor-hours. For the current year, the company’s predetermined overhead rate of $14.50 per direct labor-hour was based on a cost formula that estimated $580,000 of total manufacturing overhead for an estimated activity level of 40,000 direct labor-hours. The following transactions were recorded for the year:

Raw materials were purchased on account, $690,000.

Raw materials used in production, $641,800. All of of the raw materials were used as direct materials.

The following costs were accrued for employee services: direct labor, $530,000; indirect labor, $150,000; selling and administrative salaries, $308,000.

Incurred various selling and administrative expenses (e.g., advertising, sales travel costs, and finished goods warehousing), $457,000.

Incurred various manufacturing overhead costs (e.g., depreciation, insurance, and utilities), $430,000.

Manufacturing overhead cost was applied to production. The company actually worked 41,000 direct labor-hours on all jobs during the year.

Jobs costing $1,703,300 to manufacture according to their job cost sheets were completed during the year.

Jobs were sold on account to customers during the year for a total of $3,510,000. The jobs cost $1,713,300 to manufacture according to their job cost sheets.

9. Is manufacturing overhead underapplied or overapplied for the year? By how much?

Explanation / Answer

Applied overhead = 41000*14.50 = 594500

Actual overhead = Indirect labour+Other manufacturing overhead

= 150000+430000

Actual overhead = 580000

Over applied overhead = 594500-580000 = 14500

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