Cedar Company estimates its manufacturing overhead to be $700,000 and its direct

Question

Cedar Company estimates its manufacturing overhead to be $700,000 and its direct labor costs to be $560,000 for Year 2. Cedar worked on the following three jobs for the year: Job Status Direct Labor Costs Job 2-1 Completed and sold $195,000 Job 2-2 Completed by not sold 325,000 Job 2-3 In progress 130,000.

Actual manufacturing overhead for Year 2 was $822,000. Manufacturing overhead is applied on the basis of direct labor costs. How much of the underapplied overhead should be allocated to finished goods?

Explanation / Answer

Direct Labour Cost Job 2-1 (Completed and sold) $195,000 Direct Labour cost Job 2-2 Completed but not sold $325,000 Job 2-3 in process $130,000 Total Direct Labour Cost $650,000 Calculation of underapplied over head Actual manufacturing overhead $822,000 Actual direct labour cost $650,000 $172,000

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