Multiple Departments Applying Overhead LO21 LO22 LO23 LO27 H

Multiple Departments; Applying Overhead [LO2-1, LO2-2, LO2-3, LO2-7] High Desert Pot tteryworks makes a variety of pottery products that it sells to retailers such as Home Depot. company uses a job-order costing system in which predetermined overhead rates are used to apply nufacturing overhead cost to jobs. The predetermined overhead rate in the Molding Department is based machine-hours, and the rate in the Painting Department is based on direct labor-hours. At the beginning of the year, the company\'s management made the following estimates: Department Direct labor-hours Machine-hours . Direct materials cost Direct labor cost MoldingPainting 60,000 8,000 $510,000 $650,000 $130,000 $420,000 $497,000 $615,000 12,000 70,000 . . . . . .. manufacturing overhead cost Variable manufacturing overhead per machine-hour. … Variable manufacturing overhead per direct labor-hour . $1.50 $2.00

Solution

1. Predetermined overhead rate (molding) = fixed+ variable Manufacturing overhead/ machine hours= (497000+(1.50*70000))/70000 = 602000/70000= 8.60

Predetermined overhead rate (painting) = fixed+ Variable manufacturing overhead/direct Labor cost= (615000+120000)/420000 = 1.75

2. Total overhead cost applied to Job 205= (8.60*110)+(1.75*588) = 1975

3. Total cost for Job 205 = (470+325+(8.60*110))+(332+588+(1.75*588))=3680

Total cost for 50 units = 50*3680= 184000

4. Molding = overapplied overhead= 32000 (602000-570000)

Painting= underapplied overhead= 15000 (735000-750000)