Exercise 7-27 Predetermined Overhead Rates (LO 7-3) Aspen Company estimates its

Question

Exercise 7-27 Predetermined Overhead Rates (LO 7-3) Aspen Company estimates its manufacturing overhead to be $540,000 and its direct labor costs to be $450,000 for year 2. Aspen worked on three jobs for the year. Job 2-1, which was sold during year 2, had actual direct labor costs of $150,000. Job 2-2, which was completed, but not sold at the end of the year, had actual direct labor costs of $275,000. Job 2-3, which is still in work-in-process inventory, had actual direct labor costs of $100,000. Actual manufacturing overhead for year 2 was $600,000. Manufacturing overhead is applied on the basis of direct labor costs.

Required:

(a) How much overhead was applied to each job in year 2?

What was the over- or underapplied manufacturing overhead for year 2?

What was the over- or underapplied manufacturing overhead for year 2?

Explanation / Answer

$ Estimated Manufacturing Overhead 540000 Estimated Direct Labour Cost 450000 Estimated Manufacturin O/H per $ of Labour Cost = 540000 = $1.2/$ of Labour Cost 450000 Job 2-1 Job 2-2 Job 2-3 Total Cost Direct Labour Cost 150000 275000 100000 525000 Manufacturing Overhead (1.2$ * Labour Cost) 180000 330000 120000 630000 Total Manufacturing Overhead Applied 630000 Actual Manufacturing Overhead 600000 Overabsorbed Manufacturing Overhead 30000

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