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Overhead Rates

The following information pertains to Paramus Metal Works for the year just ended.

Budgeted direct labor cost: 77,000 hours at $17 an hour
Actual direct labor cost: 79,000 hours at $18 an hour
Budgeted manufacturing overhead: $993,300
Actual Manufacturing Overhead:

Depreciation $225,000
Property Taxes 19,000
Indirect Labor 79,000
Supervisory salaries 210,000
Utilities 58,000
Insurance 32,000
Rental of space 295,000
Indirect material (see data below) 79,000

Indirect Material:
Beginning inventory, Jan. 1 46,000
Purchases during the year 95,000
Ending inventory, Dec. 31 62,000

1. Compute the firm's predetermined overhead rate, which is based on direct-labor hours.
2. Calculate the overapplied or underapplied overhead for the year.
3. Prepare a journal entry to close out the Manufacturing Overhead account into Cost of Goods Sold.

Solution Preview

A.
The predetermined overhead rate = Budgeted overhead/Budgeted labor hours = $993,300/77,000 labor hours = $12.90/labor hour

B.
Applied factory ...

Solution Summary

This solution looks at a managerial problem to calculate the overhead rate and to determine if overhead is overapplied or underapplied.

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