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Homework answers / question archive / an Company uses activity-based costing to determine product costs for external financial reports
an Company uses activity-based costing to determine product costs for external financial reports. Some of the entries have been completed to the manufacturing overhead account for the current year, as shown by entry (a) below:
Manufacturing Overhead(a)2,345,000
Required:
1. What does entry (a) represent?
multiple choice
2. At the beginning of the year, the company made the following estimates of cost and activity for its five activity cost pools:
Activity Cost PoolActivity MeasureEstimated
Overhead CostExpected ActivityLabour relatedDirect labour-hours$602,000 43,000DLHsPurchase ordersNumber of orders 39,520 1,520ordersParts managementNumber of part types 357,000 398part typesBoard etchingNumber of boards 447,000 2,000boardsGeneral factoryMachine-hours 669,810 80,700MHs
Compute the activity rate (i.e., predetermined overhead rate) for each of the activity cost pools. (Round your final answers to 1 decimal place.)
3. During the year, actual activity was recorded as follows:
Activity Cost PoolActual ActivityLabour related41,000DLHsPurchase orders1,290ordersParts management415part typesBoard etching2,180boardsGeneral factory83,000MHs
Determine the amount of manufacturing overhead cost applied to production for the year. (Round intermediate calculations to 1 decimal place and final answers to the nearest whole dollar amount.)
4. Determine the amount of underapplied or overapplied overhead cost for the year. (Round intermediate calculations to 1 decimal place and final answers to the nearest whole dollar amount.)
Solution 1:
Debit to manufacturing Overhead account represent actual overhead incurred.
Therefore entry (a) on debit side represents "Actual manufacturing overhead costs incurred". So, the correct option is 1st.
| Solution 2: | ||||
| Computation of Activity rate | ||||
| Activity Cost Pool | Overhead cost | Expected Activity | Activity rate | |
| Labor related | 602000 | 43000 | $14.00 | Per direct labor hour |
| Purchase orders | $39,520 | 1520 | $26.00 | per order |
| parts management | 357000 | 398 | $896.98 | per part type |
| Board etching | 447000 | 2000 | $223.50 | per board |
| General Factory | 669810 | 80700 | $8.30 | per machine hour |
| Solution 3: | ||||
| Activity Cost Pool | Activity Rate | Actual activity | Overhead Applied | |
| Labor related | $14.00 | 41,000 | $574,000.00 | |
| Purchase orders | $26.00 | 1,290 | $33,540.00 | |
| parts management | $896.98 | 415 | $372,248.74 | |
| Board etching | $223.50 | 2,180 | $487,230.00 | |
| General Factory | $8.30 | 83000 | $688,900.00 | |
| Total overhead assigned | $2,155,918.74 | |||
Solution 4:
Underapplied overhead = $2345000 - $2155918.74 = $189,081.26
