1) Shotsky Enterprises allocates MOH based on direct labor hours. If MOH is over
ID: 2547535 • Letter: 1
Question
1) Shotsky Enterprises allocates MOH based on direct labor hours. If MOH isoverapplied, the most likely reason is that _____________.
the actual direct labor hours worked exceeded the budgeted direct labor hours
budgeted direct labor hours exceeded actual direct labor hours worked
Actual MOH costs exceeded budgeted total MOH costs
Cost of direct materials used exceeded budgeted direct material costs.
2) Meger Manufacturing uses direct labor cost as the allocation base for applying MOH to WIP.
The budgeted direct labor cost for the year was $1,000,000. The budgeted manufacturing overhead was $800,000.
Actual direct labor cost for the year was $1,100,000. Actual manufacturing overhead was $825,000.
What was Meger's predetermined factory overhead rate per direct labor dollar?
(Use commas, no $ signs, two decimals. For example: 1.8 would be entered 1.80; .4 would be entered .40.)
Explanation / Answer
1)
Manufacturing Overheads are overapplied when applied overheads are higher than the actual overheads incurred.
Applied Manufacturing Overheads = Actual Direct Labor Hours Worked x Overhead Rate
Therefore, If MOH isoverapplied, the most likely reason is that "the actual direct labor hours worked exceeded the budgeted direct labor hours"
The overhead rate is calculated based on the budgeted or estimated total manufacturing overhead cost and estimated allocation base. Allocation base may be direct labor hour, direct labor cost, machine hour etc.
The manufacturing overheads are applied based on the actual activity performed by the company during the period which multiplied by the overhead rate.
2)
Meger's predetermined factory overhead rate per direct labor dollar (as explained above) = Estimated Budgeted Manufacturing Overhead Cost / Estimated Direct Labor Cost for the year
= $800,000 / $1,000,000
= 0.80 per direct labor dollar
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