Mallet Music Company makes custom marimbas and xylophones. Since much of the wor
ID: 2422902 • Letter: M
Question
Mallet Music Company makes custom marimbas and xylophones. Since much of the work on these musical instruments is done by hand, the company uses direct labor hours as its manufacturing overhead application base. The company's annual budgeted overhead costs for 72,000 direct labor hours totaled $648,000. Assume that during the year, the company incurred manufacturing overhead totaling $443,000 for 72,000 direct labor hours. By how much was manufacturing overhead under- or overapplied for the year? Assume that during the year, the company incurred manufacturing overhead totaling $443,000 for 74,000 direct labor hours. By how much was manufacturing overhead under- or overapplied for the year? Assume that during the year, the company incurred manufacturing overhead totaling $589,000 for 74,000 direct labor hours. By how much was manufacturing overhead under- or overapplied for the year?Explanation / Answer
Answer:
When Budgeted Overhead is higher than Actual Overhead incurred, it is called Over Applied Overhead
When Budgeted /Estimated Overhead is lesser than Actual Overhead Incurred. It is called Under Applied Overhead
(a) Here Actual Overhead incurred = $443,000 and estimated overhead for activity level 75,000 direct labour hours was $648,000
Budgeted/Estimated Overhead > Actual Overhead = Over Applied Overhead
Over Applied Overhead = $648,000 - $443,000 = $205,000
(b) Direct Labour Hour incurred = 74,000 Hours
SInce Estimated / Budgeted Overhead is calculated on the basis of predetermined rate at predetermined activity level.
Predetermined Rate = Total Estimated Manufacturing Overhead / Activity Level = $648,000 / 72,000 Hours = $9 per hour
Actual Incurred Direct Labour Hours = 74,000 Hours
So, the BUdgeted / Estimated Manufacturing Overhead by applying predetermined rate = 74,000 x $9 = $666,000
Actual Manufacturing Overhead Incurred = $443,000
Over Applied Manufacturing Overhead = Budgeted/Estimated Overhead - Actual Overhead Incurred = $666,000 - $443,000 = $223,000
(c) --- Estimated Manufacturing Overhead for 74,000 Direct labour hours (as calculated in part b) = $666,000
Actual Manufacturing Overhead incurred for 74,000 direct labour hours = $589,000
Estimated MFR Overhead > Actual MFR Overhead = Over-Applied MFR Overhead
Over-Applied MFR Overhead = $666,000 - $589,000 = $77,000
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