Babcox Manufacturing uses a predetermined manufacturing overhead rate based on direct labor hours to allocate manufacturing overhead to jobs. Selected data about the company’s operations follows: Actual manufacturing overhead cost $410,000 Estimated manufacturing overhead cost $400,000 Estimated direct labor cost $180,000 Estimated direct labor hours 50,000 Actual direct labor hours 55,000 Estimated machine hours 80,000 Actual machine hours 84,000 By how much was manufacturing overhead overallocated or underallocated for the year?
ANSWER Concept and reason
Manufacturing Overheads:These are the expenses incurred by the company or the organization during the course of manufacturing of the product. These can be direct or indirect.
Allocation of manufacturing Overheads:The fixed manufacturing overheads are allocated to different products based in the blanket rate as per the traditional costing. This is done based on the activity level for the different products.
Conversion Costs:It is the sum of all the direct costs incurred during the process of manufacturing and all the overhead costs which are incurred during such process.
Direct materials: These are the materials which are used in the Production process which constitutes an integral portion of the final product, the cost of which is identifiable and traceable directly to it. The cost of direct material can be directly chargeable to the final product as compared to the indirect material. Fundamental
Overhead Costs:These are the expenses incurred by the company and are shown in the income statement and also they are not direct expenses of the company. Overhead costs are the indirect expenses of the company.
Overhead Rate:When all the overhead costs incurred by the company are summed up and divided by the appropriate allocation measure, the overhead rate is obtained. It can be calculated for both of the budgeted costs as well as the actual costs.
Machine Hour:It simply means a single machine working for only one hour. Machine hours are used in cost accounting to apply the overhead costs on the WIP inventory of the organization.
Explanation |
For calculating the amount of under-allocation of manufacturing overheads the actual overheads incurred by the company are subtracted from the actual overheads applied by the company.
Therefore the actual applied overheads are $440,000 but the actual overheads incurred by the company are $410,000. Therefore the manufacturing overheads for the year are under-allocated by $30,000.
The post predetermined manufacturing overhead rate based appeared first on My Assignment Online.