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    Computing predetermined overheat rate and manufacturing overhead applied

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    Samli Company has the following information:

    Estimated Actual
    Manufacturing Overhead 600,000 602,000
    Direct Labor cost 460,000 456,000
    Direct Labor hours 40,000 40,200
    Machine Hours 80,000 79,000

    Samli applies overhead based on direct labor hours. Compute the predetermined overhead rate and determine the amount of manufacturing overhead applied. Determine if overhead is over or underapplied and the amount.

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    Solution Preview

    1 Meaning of Overhead: It is the aggregate of indirect material cost, indirect wages and other indirect expenses. The expenses which are not concerned with any products are called overheads. For ex. Indirect material, indirect labor, factory expenses etc.
    Overheads are of general nature, therefore they are to be allocated to different units on some reasonable basis. The purpose of absorption is to determine the share of indirect expenses chargeable to a particular unit of cost

    2 Methods of overhead absorption
    1. Percentage on direct material method
    2. Percentage on direct labor method
    3. Percentage on prime cost method
    4. Machine hour rate method
    5. Direct ...

    Solution Summary

    The solution computes predetermined overheat rate and the manufacturing overhead applied.