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

Exercise 9

Predetermined Overhead Rates

Aspen Company estimates its manufacturing overhead to be $625,000 and its direct labor costs to be $500,000 for year 2. Aspen worked on three jobs for the year. Job 2-1, which was sold during year 2, had actual direct labor costs of $195,000. Job 2-2, which was completed, but not sold at the end of the year, had actual direct labor costs of $325,000. Job 2-3, which is still in work-in-process inventory, had actual direct labor costs of $130,000. Actual manufacturing overhead for year 2 was $825,000. Manufacturing overhead is applied on the basis of direct labor costs.

Required

a. How much overhead was applied to each job in year 2?

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b. What was the over- or underapplied manufacturing overhead for year 2?

Step 1 of 2

a.

	Application rate:	$625,000		= 125% of direct labor
		$500,000