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Technics Inc
Technics Inc., a manufacturing company, utilizes job order costing. Each division establishes its own estimates regarding overhead which are as follows: Division A Division B Total estimated overhead $128,000 $261,000 Total estimated machine hours 16,000 72,500 Total estimated direct labor hours 10,000 15,000 Total actual overhead $130,000 $250,000 Total actual machine hours 17,000 25,000 Total actual direct labor hours 18,000 14,000 Division A allocates overhead on the basis of machine hours Division B allocates overhead on the basis of direct labor costs Required: For Division A and Division B, a. Calculate the overhead application rate for the year. (3 marks) b. What is the amount of applied overhead for the year? (3 marks) c. What is the amount of under or overapplied overhead for the year? Indicate whether it is over- or underapplied
Expert Solution
For division A :
a.
Overhead application rate = Total estimated overhead/Total estimated machine hour
= 128,000/16,000
= $8 per machine hour
b.
Applied overhead = Total actual machine hour x Overhead application rate
= 17,000 x 8
= $136,000
c.
Total actual overhead = $130,000
Overapplied overhead = Applied overhead - Total actual overhead
= 136,000 - 130,000
= $6,000
For Division B :
a.
Overhead application rate = Total estimated overhead/Total estimated Direct labor hour
= 261,000/15,000
= $17.4 per direct labor hour
b.
Applied overhead = Total actual direct labor hour x Overhead application rate
= 14,000 x 17.4
= $243,600
c.
Total actual overhead = $250,000
underapplied overhead = Total actual overhead - Applied overhead
= 250,000 - 143,600
= $6,400
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