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P3-45A (similar to) Hartley Uniforms produces uniforms
P3-45A (similar to) Hartley Uniforms produces uniforms. The company allocates manufacturing overhead based on the machine hours each job uses. Hartley Uniforms reports the following cost data for the past year: (Click the icon to view the cost data) Read the requirements. Requirement 1. Compute the predetermined manufacturing overhead rate. Enter the formula for predetermined manufacturing overhead rate, then compute the rate. Estimated yearly overhead costs Estimated yearly machine hours Predetermined overhead rato 1 6300 - per machine hour
Data Table - X my all following cost Actual Budget 7,200 hours nufad 6,200 hours 6,400 hours ngove 6,300 hours $ 21,500 $ 52,000 $ 21,500 imate $ 54,500 Direct labor hours Machine hours Depreciation on salespeople's autos Indirect materials Depreciation on trucks used to deliver uniforms to customers Depreciation on plant and equipment Indirect manufacturing labor. Customer service hotline Plant utilities. .. Direct labor cost ireme $ 14,500 $ 69,000 $ 43,000 $ 19,000 $ 12,000 $ 70,000 $ 44,000 $ 21,500 $ 20,700 $ 85,000 $ 18,700 ute th ate the ute th s und $ 73,000 Print Done -an mg ead cd
ed manufacturing overhead rate. acturing Estim Requirements 1. Compute the predetermined manufacturing overhead rate. 2. Calculate the allocated manufacturing overhead for the past year. 3. Compute the underallocated or overallocated manufacturing overhead. How will this underallocated or overallocated manufacturing overhead be disposed of? 4. How can managers use accounting information to help control manufacturing overhead costs?
Expert Solution
Computation of estimated yearly overhead costs
Depreciation on salesperson's autos 21,500
Indirect Materials 52,000
Depreciation on trucks used to deliver uniforms 14,500
Depreciation on plant and equipment 69,000
Indirect Labor 43,000
Customer service hotline 19,000
Plant Utilities 18,700
Total predetermined Overhead Costs 237,700
*Note - Direct labor cost is not an overhead expense hence not included in calculation of total overheads.
Pre determined manufacturing overhead rate = Total Overhead Costs / Number of budgeted machine hours
= $237,700 / 6300 machine hours
= $37.73 per machine hour
Allocated manufacturing overhead = Pre determined manufacturing overhead rate* Actual machine hours
= $37.73 per machine hour * 6,400 hours
= $241,472
Calculation of actual overheads
Depreciation on salesperson's autos 21,500
Indirect Materials 54,500
Depreciation on trucks used to deliver uniforms 12,000
Depreciation on plant and equipment 70,000
Indirect Labor 44,000
Customer service hotline 21,500
Plant Utilities 20,700
Total Overhead Costs actually incurred 244,200
Under allocated overheads = Total Overhead Costs actually incurred - Allocated manufacturing overhead
= $244,200 - $241,472
= $2,728
Treatment of under allocated overheads
Under allocated overheads can be transferred to Costing profit and loss account as loss. or,
It can be charged to closing stock, sales and work in progress units either by using a supplementary rate or on the basis of value of closing stock, sales and work in progress.
Use of accounting information by the managers
Managers can use these information in finding the point of deviations like as to which activity is utilizing more cost as compared to the budgeted costs. Then managers can take appropriate decisions like how they can control the relevant costs.
Moreover they can find alternatives to high cost activities. The accounting information helps the manager to locate the areas of inefficiency and necessary actions can be taken to improve the efficiency and effectiveness of the departments
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