Moody Corporation uses a job-order costing system with a plant wide overhead rat

Question

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

Machine-hours required to support estimated production…………100,000

Fixed manufacturing overhead cost……………………………….$650,000

Variable manufacturing overhead cost per machine-hour…………$3.0

Required:

1. Compute the predetermined overhead rate

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

Direct materials requisitioned…………………..$450

Direct labor cost………………………………...$210

Machine-hours used……………………………….40

2. Compute the total manufacturing cost assigned to Job 400.                                       

3. During the year, the company worked a total of 146,000 machine-hours on all jobs and incurred actual manufactured overhead costs of $1,350,000. What is the amount of underapplied or overapplied for the year? If this amount were closed out entirely to cost of Goods Sold would the journal entry increase or decrease net operating income?   

Explanation / Answer

1. Compute the predetermined overhead rate

Fixed predetermine overhead rate = 650000/100000 = 6.5 per machine hour

Variable predetermine overhead rate = 3 per machine hour

Total predetermine overhead rate = (6.5+3) = 9.50 per machine hour

2. Compute the total manufacturing cost assigned to Job 400.   

3. Applied overhead = 146000*9.50 = 1387000

Actual overhead = 1350000

Over applied overhead = 1387000-1350000 = 37000

If this amount were closed out entirely to cost of goods sold then net operating income will be increase.

Direct material 450 Direct labour 210 Manufacturing overhead (40*9.5) 380 Total manufacturing cost 1040

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