Luzadis Company makes furniture using the latest automated technology. The compa

Question

Luzadis Company makes furniture using the latest automated technology. The company uses a job-order costing system and applies manufacturing overhead cost to products on the basis of machine-hours. The following estimates were used in preparing the predetermined overhead rate at the beginning of the year: Machine-hours Fixed manufacturing overhead cost Variable manufacturing overhead per computer-hour 84,000 $1,278,000 $ 3.60 During the year, a glut of furniture on the market resulted in cutting back production and a buildup of furniture in the company's warehouse. The company's cost records revealed the following actual cost and operating data for the year: Machine-hours Manufacturing overhead cost 50,000 $997,000 Required: 1. Compute the company's predetermined overhead rate for the year. (Round your answer to 2 decimal places.) Predetermined overhead rate per hour 2. Compute the underapplied or overapplied overhead for the year. (Round your intermediate calculations to 2 decimal places.)

Explanation / Answer

Req 1 Fixed Manufacturing OH rate: Fixed manufacturing OH / Machine Hours ($ 1278,000 /84,000 MH) = $ 15.214 per unit Pre-determined overhead rate per MH Variable OH rate per MH 3.6 Add: Fixed OH rate per MH 15.214 Pre-determined OH rate 18.814 Req 2: Under/Overapplied OH Overheads actually incurred 997,000 Less: Overheads applied (50,000 MH @$18.814) 940700 Under-applied overheads 56,300 Under applied Overheads $56,300

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