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    Compute company's predetermined overhead rate

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    Estimated cost and operating data for three companies for the upcoming year follow:

    Company X Company Y Company Z
    Direct labor-hours 80,000 45,000 60,000
    Machine-hours 30,000 70,000 21,000
    Direct materials cost $400,000 $290,000 $300,000
    Manufacturing overhead cost $536,000 $315,000 $480,000

    Predetermined overhead rates are computed using the following allocation bases in the three companies:

    Allocation Base
    Company X Direct labor-hours
    Company Y Machine-hours
    Company Z Direct materials cost

    1. Compute each company's predetermined overhead rate.

    2. Assume that Company X works on three jobs during the upcoming year. Direct labor-hours recorded by job are: Job 418, 12,000 hours; Job 419, 36,000 hours; and Job 420, 30,000 hours. How much overhead will the company apply to Work in Process for the year? If actual overhead costs total $530,000 for the year, will overhead be underapplied or overapplied? By how much?

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    Solution Summary

    The expert computes a company's predetermined overhead rate. The allocation bases in three companies is examined.