Requirements 1. Compute the predetermined manufacturing overhead rate for SOS. 2

Question

Requirements
1. Compute the predetermined manufacturing overhead rate for SOS.
2. Calculate the allocated manufacturing overhead for the past year.
3. Compute the underallocated and overallocated manufacturing overhead. How will this
be adjusted?
4. How will the budgeted cost data and predetermined manufacturing overhead
information be useful to the company manager?

Analyze manufacturing overhead SOS produces clothes and uses a job costing system. The company allocates manufacturing overhead based on the direct labor hours for each job in the plant. SOS reports the following cost data for the past year: Actual 8,000 hours 7,100 hours 54,000 55,000 120,000 80,000 45,000 20,000 8,500 60,000 60,000 Budget 8,200 hours 7,100 hours Direct labor hours Machine hours Depreciation on machinery and equipment Direct materials Indirect labor cost Direct labor cost Factory utilities Indirect materials Depreciation on company director's car Factory rental Advertising expenses 54,000 50,000 110,000 78,000 48,000 20.000 8,500 160.000 63.000

Explanation / Answer

1

1. Compute the predetermined manufacturing overhead rate for SOS.

  Predetermined manufacturing overhead rate=292000/8200=35.61 per Direct Labor hr

2. Calculate the allocated manufacturing overhead for the past year.
=8000*35.61=284878.05

3. Compute the underallocated and overallocated manufacturing overhead. How will this
be adjusted?

=Actual - Applied

Underallocated=299000-274878.05=14121.95

How will this be adjusted?

Debiting Cost of goods sold and crediting overhead account

How will the budgeted cost data and predetermined manufacturing overhead
information be useful to the company manager?

it help manager to have controle over manufacturing overhead by comparing actual with budgeted.

It help it fixing the sales price of the product by estimating the cost of product

Actual Budget Depreciation on Machinery 54000 54000 indirect Labor cost 120000 110000 Factory Utilities 45000 48000 Indirect material 20000 20000 Factory rental 60000 60000 Total Overhead Cost 299000 292000

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