Question

Peppy Pups, a dog toy company, uses a job order costing system in which overhead is applied to jobs on the basis of direct labor hours. It's predetermined overhead rate is based on a cost formula that estimated $346,000 of manufacturing overhead for an estimated activity level 69,200 direct labor hours. Peppy Pups began the year with no raw materials, work in process or finished goods inventory. During the year, the following transactions were completed: Raw materials purchased, $300,000 Raw materials requisitioned for use in production, $280,000 (materials costing $220,000 were charged directly to jobs, the remaining material were indirect) Direct labor costs, $180,000 (at $4/direct labor hours) Indirect labor was, $72,000 Sales commissions and administrative salaries, $153,000 Utility costs incurred in the factory, $57,000 Advertising costs incurred, $140,000 Depreciation recorded on equipment, $100,000 ($88,000 of this amount was on equipment used in factory operations, the remaining was on equipment used in selling and administrative activities Manufacturing overhead was applied to jobs, S ???? Sales for the year totaled S1,250,000 and the company's gross margin was $700,00. . Is the manufacturing overhead overapplied or underapplied for the year and by how much?

Answer 1

Answer:

Explanation:

Predetermined overhead rate is based on a cost formula that estimated $346,000 of manufacturing overhead for an estimated activity level 69,200 direct labor hours. So Overhead rate is 346,000/69,200 = $5/labour hour

Applied overhead = 180,000/4*5 = $225,000

Actual overhead = 60,000[280,000-220,000] +72,000+57,000+88,000 = $277,000

Under applied overhead = 225,000-277,000 = $52000