Question

Moody Corporation uses a job-order costing system with a plant wide overhead rate based on machine-hours. At the beginning of the year, the company made the following estimates:Machine-hours required to support estimated production…………100,000Fixed manufacturing overhead cost……………………………….$650,000Variable manufacturing overhead cost per machine-hour…………$3.0Required:1. Compute the predetermined overhead rateDuring the year, Job 400 was started and completed. The following information was available with respect to the job:Direct materials requisitioned…………………..$450Direct labor cost………………………………...$210Machine-hours used……………………………….402. Compute the total manufacturing cost assigned to Job 400. 3. During the year, the company worked a total of 146,000 machine-hours on all jobs and incurred actual manufactured overhead costs of $1,350,000. What is the amount of underapplied or overapplied for the year? If this amount were closed out entirely to cost of Goods Sold would the journal entry increase or decrease net operating income?

Answer 1

Answer:

1) Predetermined overhead rate = $9.50

2) Total Manufacturing cost assigned = $1,040

3) The Maunfacturing overhead is overapplied by $37,000 which can increase net operating income if acharged to the cost of goods sold.

Explanation:

The question is divided into 3 parts:

Part 1: To compute the predetermined Overhead rate:

First the formula is as follows:

Predeterined Overhead Rate= The Manufacturing Overhead Estimated/ The Machine Hours Estimated

Estimated Overhead = $950,000 and Machine Hours estimated = 100,000 hours

Therefore= $950,000/100,000= $9.50 is the predetermined overhead rate

Note: To compute the Manufacturing Overhead of $950,000 is as follows:

The fixed overhead + the Variable Overhead ($3 per machine hour x 100,000 hours)

= $650,000 + $300,000

= $950,000

Part 2:  The Calculation of the maunfacturing cost in total assigned to job 400

To determine the total manufacturing cost, the following formula is crucial

Material Cost + Labour Cost + The Manufacturing Overhead (Machined hour used x determined in step 1 above)

= $450 + $210 + (40 hours x $9.5) $380

= $1,040 - This is the Total Manufacturing cost for Job 400

Part 3: To determine whether the Manufacturing Overhead Cost is Under applied or over applied.

First; Actual Overhead = $1,350,000

Second, Under or over applied = Predetermined rate in step 1 x The total number of machine hours during the year that resulted in the actual manufctured overhead costs of $1,350,000

= $9.5 x 146,000 Machine Hours

= $1,387,000

Since, $1,387,000 is higher than the actual $1,350,000, then the manufacturing overhead is Overapplied.

Overapplied Manufacturing Overhead Value= $1, 387,000- $1,350,000= $37,000

Question 3 Part B - It has been established that the manufacturing overhead is overapplied, this figure if then charged to the COGS (Cost of Goods Sold), the net oprating income will therefore increase.