Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 7

Predetermined Overhead Rates

Mark Corporation estimates its manufacturing overhead to be $90,000 and its direct labor costs to be $200,000 for year 1. The actual direct labor costs were $50,000 for Job 301, $75,000 for Job 302, and $100,000 for Job 303 during year 1; the actual manufacturing overhead was $97,000. Manufacturing overhead is applied to jobs on the basis of direct labor costs using predetermined rates.

Required

a. How much overhead was assigned to each job during year 1?

---

b. What was the over- or underapplied manufacturing overhead for year 1?

Step 1 of 4

Predetermined Overhead rate is the estimated manufacturing overhead for the coming year divided by the estimated activity of the allocation base for the year.

Allocation base for M Corporation is direct Labour cost.

Predetermined rate is calculated as under:

Therefore, the predetermined rate is 45 percent.