Concept explainers
Analyze manufacturing overhead (Learning Objectives 3 & 5)
Smith Foundry in Columbus, Ohio, uses a predetermined manufacturing overhead rate to allocate overhead to individual jobs based on the machine hours required. At the beginning of the year, the company expected to incur the following:
$ 630,000 | |
Direct labor cost | $1,650,000 |
Machine hours | 90,000 |
At the end of the year, the company had actually incurred the following:
Direct labor cost | $1,230,000 |
$ 480,000 | |
Property taxes on plant | $ 19,500 |
Sales salaries | $ 26,500 |
Delivery drivers’ wages | $ 17,000 |
Plant janitors’ wages | $ 8,500 |
Machine hours | 56,500 hours |
Requirements
- 1. Compute Smith’s predetermined manufacturing overhead rate.
- 2. How much manufacturing overhead was allocated to jobs during the year?
- 3. How much manufacturing overhead was incurred during the year? Is manufacturing overhead underallocated or overallocated at the end of the year? By how much?
- 4. Were the jobs overcosted or undercosted? By how much?
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