Medusa Products uses a job-order costing system. Overhead costsare applied to jobs on the...

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Accounting

Medusa Products uses a job-order costing system. Overhead costsare applied to jobs on the basis of machine-hours. At the beginningof the year, management estimated that the company would work88,800 machine-hours and incur $346,320 in manufacturing overheadcosts for the year.

Required:
1. Compute the company's predetermined overhead rate.(Round your answer to 2 decimal places.)
Predetermined overhead rate ............................... Per MH
2. Assume that during the year the company actually worked only81,900 machine-hours and incurred $340,000 of manufacturingoverhead costs. Compute the amount of underapplied or overappliedoverhead for the year. (Round your intermediate calculationto 2 decimal places.)

Answer & Explanation Solved by verified expert

3.7 Ratings (297 Votes)

1. Predetermined overhead rate = Manufacturing overhead incurred / Estimated machine hours

= $346,320 / 88,800 machine-hours

= $3.9 per hour

Therefore, the company’s predetermined overhead rate is $3.9 per hour.

2. Actual overhead rate = Actual overhead incurred / Actual hours worked

= $340,000 / 81,900 machine-hours

= $4.15 per hour

Under applied overhead rate = Actual overhead rate – Predetermined overhead rate

= $4.15 per hour - 3.9 per hour

= $0.25 per hour

Under applied overhead for the year = Under applied overhead rate × Actual hrs worked

= $0.25 per hour × 81,900 hours

= $20,475.

Thus, the under applied overhead for the year is $20,475.

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Transcribed Image Text

In: AccountingMedusa Products uses a job-order costing system. Overhead costsare applied to jobs on the basis...Medusa Products uses a job-order costing system. Overhead costsare applied to jobs on the basis of machine-hours. At the beginningof the year, management estimated that the company would work88,800 machine-hours and incur $346,320 in manufacturing overheadcosts for the year. Required:1. Compute the company's predetermined overhead rate.(Round your answer to 2 decimal places.)Predetermined overhead rate...............................Per MH2. Assume that during the year the company actually worked only81,900 machine-hours and incurred $340,000 of manufacturingoverhead costs. Compute the amount of underapplied or overappliedoverhead for the year. (Round your intermediate calculationto 2 decimal places.)