P2-4A Agassi Company uses a job order cost system in each of its three manufactu

Question

P2-4A Agassi Company uses a job order cost system in each of its three manufacturing departments. Manufacturing overhead is applied to jobs on the basis of direct labor cost in Department D, direct labor hours in Department E, and machine hours in Department K. In establishing the predetermined overhead rates for 2017, the following estimates were made for the year. Department Manufacturing overhead $1,200,000 $1,500,000 $900,000 Direct labor costs Direct labor hours Machine hours 1,500,000 1,250,000 $450,000 40,000 120,000 100,000 400,000 125,000 00,000 During January, the job cost sheets showed the following costs and production data. Department $140,000 $126,000 $78,000 $120,000 $110,000 $37,500 Manufacturing overhead incurred 99,000 $124,000 $79,000 3,500 10,400 Direct materials used Direct labor costs Direct labor hours Machine hours 8,000 34,000 11,000 45,000 Instructions (a) Compute the predetermined overhead rate for each department. (b) Compute the total manufacturing costs assigned to jobs in January in each depart ment. (c) Compute the under- or overapplied overhead for each department at January 31

Explanation / Answer

SOLUTION

A. Predetermined overhead rate for each department-

Department D- $1,200,000 / $1,500,000 = 80% direct cost

Department E - $1,500,000 / 125,000 = $12 per direct labor hours

Department K - $900,000 / 120,000 = $7.50

B. Total manufacturing costs assigned to jobs in January in each department-

C. Under or over-applied overhead for each department at January 31

Department D ($) Department E ($) Department K ($) Direct Materials 140,000 126,000 78,000 Direct labor 120,000 110,000 37,500 Overhead applied 96,000 (120,000*80%) 132,000 ($12*11,000) 78,000 (10,400*$7.50) 356,000 368,000 193,500

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