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…………100,000

Fixed manufacturing overhead cost……………………………….$650,000

Variable manufacturing overhead cost per machine-hour…………$3.0

Required:

1. Compute the predetermined overhead rate

During the year, Job 400 was started and completed. The following information was available with respect to the job:

Direct materials requisitioned…………………..$450

Direct labor cost………………………………...$210

Machine-hours used……………………………….40

2. 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. 9.50 per machine hour

2.  $1,040

3. $37,000 ; Increase

Explanation:

1. Fixed predetermine overhead rate:

= Fixed manufacturing overhead cost ÷ Machine-hours required

= 650,000 ÷ 100,000

= 6.5 per machine hour

Variable predetermine overhead rate = 3 per machine hour

Total predetermine overhead rate:

= Fixed predetermine overhead rate + Variable predetermine overhead rate

= (6.5 + 3)

= 9.50 per machine hour

2. Total manufacturing cost:

= Direct material + Direct labor + Manufacturing overhead

= $450 + $210 + (40 × 9.5)

= $450 + $210 + $380

= $1,040

3. Applied overhead:

= Total machine hours × Total predetermine overhead rate

= 146,000 × $9.50

= $1,387,000

Actual overhead = $1,350,000

Over applied overhead:

= Applied overhead -  Actual overhead

= $1,387,000 - $1,350,000

= $37,000

If this amount were closed out entirely to cost of goods sold then net operating income will be increase.