Exercise 4-18 Sinclair Company manufactures a line of lightweight running shoes.

Question

Exercise 4-18 Sinclair Company manufactures a line of lightweight running shoes. CEO Andrew Sinclair estimated that the company would incur $2,500,000 in manufacturing overhead during the coming year. Sinclair Company uses direct labor hours as its manufacturing overhead application base, predetermined overhead rate is $12.50/DLH and when it uses machine hours as its manufacturing overhead application base, predetermined overhead rate is $5.00/MH. Additionally, he estimated the company would operate at a level requiring 200,000 direct labor hours and 500,000 machine hours. At the end of the year, Sinclair Company had worked 202,000 direct labor hours, used 348,000 machine hours, and incurred $2,515,000 in manufacturing overhead. If Sinclair Company used direct labor hours as its manufacturing overhead application base, how much overhead was applied to jobs during the year? Overhead applied 2525000 s Using direct labor hours as the application base, was manufacturing overhead under- or overapplied for the year? By how much? Manufacturing overhead overapplied by $ 10000 If Sinclair Company used machine hours as its manufacturing overhead application base, how much overhead was applied to jobs during the year? Overhead applied 1740000 Using machine hours as the application base, was manufacturing overhead under- or overapplied for the year? By how much? Manufacturing overhead underapplied 7850000

Explanation / Answer

1 Overhead applied = 202000*12.5= $2525000 2 Manufacturing overhead overapplied by $10000 (2525000-2515000) 3 Overhead applied = 348000*5= $1740000 4 Manufacturing overhead underapplied by $775000 (1740000-2515000)

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