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Equations and theories behind solving for overhead for companies

Tortolla Company is a manufacturing firm that uses a job-order costing system. The company
uses machine hours to apply overhead to work in process. On January 1, Tortolla's
management estimated that it would incur \$700,000 in manufacturing overhead costs and
56,000 machine hours over the coming year.

A. Compute the company's predetermined overhead rate for the year.

B. Assume that the company uses only 54,000 machine hours over the year and incurs the
following manufacturing costs:

Maintenance \$56,000
Depreciation \$206,000
Indirect Materials \$76,000
Utilities \$164,000
Insurance \$94,000
Indirect Labor \$64,000

Compute the amount of overhead that was applied to production and the amount of over-or
under applied overhead for the period.

#### Solution Preview

Tortolla Company is a manufacturing firm that uses a job-order costing system. The company
uses machine hours to apply overhead to work in process. On January 1, Tortolla's
management estimated that it would incur \$700,000 in manufacturing overhead costs and
56,000 machine hours over the coming year.

A. Compute the company's predetermined ...

#### Solution Summary

This explains the computation of Predetermined overhead rate through a case study.

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