Problem 2. Jiffy Fabricators applies overhead based on direct labor hours. The c

Question

Problem 2. Jiffy Fabricators applies overhead based on direct labor hours. The company provided the following annual amounts:

Actual direct labor

1,900 hours at $13 per hour

Estimated direct labor

1,950 hours at $12.80 per hour

Estimated manufacturing overhead

$51,600

Actual manufacturing overhead

$50,100

A.  How much overhead was applied during the year?

B. Create a t-account for which the amount from part A is posted. Label the account with the correct account name. Post all amounts and calculate and label the balance as over or underapplied.

C. Briefly state the two reasons that manufacturing overhead is applied.

Actual direct labor

1,900 hours at $13 per hour

Estimated direct labor

1,950 hours at $12.80 per hour

Estimated manufacturing overhead

$51,600

Actual manufacturing overhead

$50,100

Explanation / Answer

A policy of maturity matching will allow changes in market interest rates to have approximately the same effect on both interest income and interest expense. An increase in rates will tend to increase both income and expense, and a decrease in rates will tend to decrease both income and expense. The changes in income and expense may not be equal because of different cash flow characteristics of the assets and liabilities. The asset-transformation function of an FI involves investing short-term liabilities into long-term assets. Maturity matching clearly works against successful implementation of this process.

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