Savallas Company is highly automated and uses computers to control manufacturing

Question

Savallas Company is highly automated and uses computers to control manufacturing operations. The company uses a job-order costing system and applies manufacturing overhead cost to products on the basis of computer-hours. The following estimates were used in preparing the predetermined overhead rate at the beginning of the year:

During the year, a severe economic recession resulted in cutting back production and a buildup of inventory in the company

Computer-hours 81,000 Fixed manufacturing overhead cost $ 1,274,000 Variable manufacturing overhead per computer-hour $ 3.90

Explanation / Answer

Overhead rate is Est overhead cost / Est Allocation base 1530000 / 85000 = $18 Actual OH - 1,350,000 Applied ($18 x 60k) - 1,080,000 Under Applied 270,000 Unadjusted CGS 2,800,000 ADD: Underapplied 270,000 CGS 3,070,000

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