Moody Corporation uses a job-order costing system with a plantwide overhead rate

Question

Moody Corporation uses a job-order costing system with a plantwide overhead rate based on machine-hours. At the beginning of the year, the company made the following estimates:

Compute the predetermined overhead rate. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

During the year, Job 400 was started and completed. The following information was available with respect to this job:

Compute the total manufacturing cost assigned to Job 400. (Do not round intermediate calculations and round final answer to 2 decimal places.)

During the year the company worked a total of 145,400 machine-hours on all jobs and incurred actual manufacturing overhead costs of $1,334,410. What is the amount of underapplied or overapplied overhead for the year? (Use the overhead rate determined in requirement 1.)

If this amount were closed out entirely to Cost of Goods Sold, would net operating income increase or decrease?

Moody Corporation uses a job-order costing system with a plantwide overhead rate based on machine-hours. At the beginning of the year, the company made the following estimates:

Explanation / Answer

Solution: 1. Predetermined overhead rate. 9.15 Working Notes: The predetermined overhead rate = Estimated total manufacturing overhead cost / Estimated total machine-hours (MHs) Estimated total manufacturing overhead cost Estimated fixed manufacturing overhead $656,000 a Estimated variable manufacturing overhead $790,000 b [ Variable manufacturing overhead cost per machine-hour x Machine-hours required to support estimated production ] [$5 x 158,000 ] Estimated total manufacturing overhead cost $1,446,000 c = a+b Estimated total machine-hours (MHs) 158,000 The predetermined overhead rate = Estimated total manufacturing overhead cost / Estimated total machine-hours (MHs) =$1,446,000/158,000 =$9.151898734 =$9.15 =9.15 per MH 2. The total manufacturing cost assigned to Job 400 941.95 Working Notes: The total manufacturing cost assigned to Job 400 Direct materials 380 Direct labor 260 Manufacturing overhead applied 301.95 ( predetermined overhead rate x Machine hours used ) ($9.15 per MH × 33 MHs) The total manufacturing cost 941.95 3. a. The amount of underapplied   is $4,000 Working Notes: Computation of underapplied/overapplied overhead: Actual manufacturing overhead (a) $1,334,410 Manufacturing overhead applied (b) $1,330,410 [Actual machine-hours × Predetermined overhead rate ] [145,400 machine-hours x $9.15 ] Underapplied overhead (a) – (b) $4,000 Manufacturing OH applied is $1,330,410 which is lower than Actual manufacturing OH $1,334,410 , hence, it is underapplied by $4,000 3. b. Net operating income decrease by $4,000 Working Notes: If this amount were closed out entirely to Cost of Goods Sold, as result it will increase cost of goods sold by $4,000 and decrease net operating income by $4,000 Please feel free to ask if anything about above solution in comment section of the question.

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