\"Blast it!\" said David Wilson, president of Teledex Company. \"We\'ve just los

Question

"Blast it!" said David Wilson, president of Teledex Company. "We've just lost the bid on the Koopers job by $9,900. It seems we're either too high to get the job or too low to make any money on half the jobs we bid."
Teledex Company manufactures products to customers' specifications and operates a job- order costing system. Manufacturing overhead cost is applied to jobs on the basis of direct labor cost. The following estimates were made at the beginning of the year:
Fabricating Machining Assembly Total plant
Direct labor $300,000 $201,000 $400,000 $901,000
Manufacturing overhead $537,000 $806,010 $100,000 $1,443,010

Jobs require varying amounts of work in the three departments. The Koopers job, for example, would have required manufacturing costs in the three departments as follows:
Fabricating Machining Assembly Total plant
Direct materials $11,900 $800 $5,500 $18,200
Direct labor $6,500 $1,700 $12,900 $21,100
Manufacturing overhead ? ? ? ?

At the end of the year, the company assembled the following actual cost data relating to all jobs worked on during the year:
Fabricating Machining Assembly Total Plant
Direct materials $761,000 $90,000 $410,000 $1,261,000
Direct labor $320,000 $210,000 $341,000 $871,000
Manufacturing overhead $561,000 $830,000 $93,000 $1,484,000

A) Compute the underapplied or overapplied overhead for the year, assuming that a plantwide overhead rate is used.
B) Compute the underapplied or overapplied overhead for the year, assuming that departmental overhead rates are used.
-fabricating
-machining
-assembly
-total plant

Explanation / Answer

Hi, Please find the calculations as below: Predetermined Overhead Rate based on direct labor cost: 1,443,010/901,000 = 1.60 Applied Overhead using this rate would be = 1.6 * 871000 = 1393600 Underapplied Overhead = 1,443,010 - 1,393,600 = 49410 Departmental Overhead Rates based on DL Cost Fabricating = 537000/300000 = 1.79 or 1.8 Machining = 806010/201000 = 4.01 or 4 Assembly = 100000/400000 = .25 Applied Overhead Fabricating = 1.79 or 1.8 = 1.79 * 320000 = 572800 Machining = 4.01 or 4 = 4.01 * 210000 = 842100 Assembly = .25 * 341000 = 85250 Plant = 572800 + 842100 + 85250 = 1500150 Underapplied or Overapplied Fabricating = Actual - Applied = 561000 - 572800 = 11800 (Over) Machining = Actual - Applied = 830000 - 842100 = 12100 (Over) Assembly = Actual - Applied = 93000 - 85250 = 7750 (Under) Plant = Actual - Applied = 1484000 -1500150 = 16150 (Over) Thanks, Aman Assembly = Actual - Applied = Plant = Actual - Applied =

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