This problem has two completely unrelated and independent scenarios – do not mix

Question

This problem has two completely unrelated and independent scenarios – do not mix the two or use the wrong information for either scenario.

Part A:

Products Co. uses a predetermined overhead rate (POR) based on machine hours utilized, to apply manufacturing overhead to jobs. The company's estimated costs for the current year (2016) are as listed in the Excel template sheet.

It is estimated that 15,094 machine hours, and 12,458 direct labor hours will be utilized during the year (2016). Calculate the POR:

Part B:

Brewery . uses direct labor hours (DLH) in its predetermined overhead rate. At the end of the year, the actual labor hours (DLH) were 3,440 hours and the total actual manufacturing overhead was $147,360.

At the beginning of the year, estimated direct labor hours (DLH) for the year were 3,850 hours and the estimated manufacturing overhead for the year was $140,525.

Calculate the Manufacturing Overhead balance at the end of the year and the journal entry to clear this amount if necessary, also indicate if it is under or over applied.

PLEASE PUT ALL INFO IN EXCEL SPREADSHEET FORM

Explanation / Answer

Since, this problem has two completely unrelated and independent scenarios – And we do not mix the two or use the wrong information for either scenario.

Thus, Their is an insufficient Information in Part A.

Because It is asked to Calculate POR (based on machine hours) and the formula of

POR (based on machine hours) = Estimated Manufacturing Overhead Cost / Estimated machine Hours

Since Estimated Manufacturing Overhead Cost is not given for Part A. Thus, the exact Answer cannot be given.

Part B.

POR (based on Direct Labour Hours) =

Estimated Manufacturing Overhead Cost / Estimated Labour Hours

= 140525 / 3850 = $ 36.5 per Labour Hour

Applied Manufacturing Overhead = (POR) x ( Actual Labour Hour)

= 36.5 x 3440 = $ 125,560

Actual Manufacturing Overhead = $ 147,360

Conclusion = If Actual Overhead > Applied Overhead,

then it indicates Under-applied manufacturing overhead.

Hence, Manufacturing Overhead Balance at the end= 147360-125560 = $21,800

Journal Entry

Cost of Good Sold-Dr. $21,800

To Manufacturing Overheads $21,800

(Being Transfer of entire under-applied overhead to cost of goods sold account)

POR (based on Direct Labour Hours) =

Estimated Manufacturing Overhead Cost / Estimated Labour Hours

= 140525 / 3850 = $ 36.5 per Labour Hour

Applied Manufacturing Overhead = (POR) x ( Actual Labour Hour)

= 36.5 x 3440 = $ 125,560

Actual Manufacturing Overhead = $ 147,360

Conclusion = If Actual Overhead > Applied Overhead,

then it indicates Under-applied manufacturing overhead.

Hence, Manufacturing Overhead Balance at the end= 147360-125560 = $21,800

Journal Entry

Cost of Good Sold-Dr. $21,800

To Manufacturing Overheads $21,800

(Being Transfer of entire under-applied overhead to cost of goods sold account)

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