Ravsten Company uses a joborder costing system The company a

Ravsten Company uses a job-order costing system. The company applies overhead cost to jobs on the basis of machine-hours. For the current year, the company estimated that it would work 43,000 machine-hours and incur $197,800 in manufacturing overhead cost. The following transactions occurred during the year: a. Raw materials requisitioned for use in production, S24 1,000 (80% direct and 20% indirect. b. The following costs were incurred for employee services: Direct labor Indirect labor Sales commissions Administrative salaries S 167,000 S 25,000 $ 17,000 32,000 c. Heat, power, and water costs incurred in the factory, $52,000 d. Insurance costs, $17,000 90% relates to factory operations and 10% relates to selling and administrative activities e. Advertising costs incurred, $57,000 Depreciation recorded for the year, $67,000 85% relates to factory operations, and 15 relates to selling and administrative activities g. The company used 47,000 machine-hours during the year. h. Goods that cost $487,000 to manufacture according to their job cost sheets were transferred to the finished goods warehouse. i. Sales for the year totaled $714,000. The total cost to manufacture these goods according to their job cost sheets was $482,000. Required: 1. Determine the underapplied or overapplied overhead for the year. (Round predetermined overhead rate to 2 decimal places)

Solution

Determine underapplied or overapplied overhead :

Applied overhead = (197800/43000)*47000 = 216200

Over applied overhead = actual overhead-applied overhead

= 197450-216200

Overapplied overhead = 18750

	Actual overhead
Indirect labour	25000
Heat, power and water	52000
Insurance cost (17000*90%)	15300
Depreciation exp (67000*85%)	56950
Indirect material (241000*20%)	48200
Total actual overhead	197450