Question

Moody Corporation uses a job-order costing system with a plantwide 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 156,000

Fixed manufacturing overhead cost $652,000

Variable manufacturing overhead cost per machine-hour $4.70

Required:

1. Compute the predetermined overhead rate. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

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

Direct materials requisitioned $400

Direct labor cost $210

Machine-hours used 36

Compute the total manufacturing cost assigned to Job 400. (Do not round intermediate calculations and round final answer to 2 decimal places.)

3-a. During the year the company worked a total of 146,000 machine-hours on all jobs and incurred actual manufacturing overhead costs of $1,301,980. What is the amount of underapplied or overapplied overhead for the year? (Use the overhead rate determined in requirement 1.)

3-b. If this amount were closed out entirely to Cost of Goods Sold, would net operating income increase or decrease

Answer 1

Answer:

1) Predetermined overhead rate= $8.88 per machine hour

2) Total Manufacturing Costs =  $ 929.66

3a)Underapplied overhead for the year= $ 5500

3-b) If the overhead is underapplied and it is corrected by increasing  Cost of Goods Sold so it reduces net income.

Explanation:

Moody Corporation

Machine-hours required to support estimated production 156,000

Fixed manufacturing overhead cost $652,000

Variable manufacturing overhead cost per machine-hour $4.70

Variable manufacturing overhead=$4.70* 156,000 = $ 733,200

Predetermined overhead rate= Total Overhead Costs/ Direct Labor Hours

1) Predetermined overhead rate= $652,000 +$ 733,200/  156,000 = $8.88 per machine hour

Job 400

Direct materials requisitioned $400

Direct labor cost $210

Machine-hours used 36

Manufacturing Overhead = $ 8.88 * 36=  $ 319.66

2) Total Manufacturing Costs =  $ 929.66

3) Actual manufacturing overhead costs  $1,301,980

Total  machine-hours on all jobs 146,000

Predetermined overhead rate= $8.88 per machine hour

Applied manufacturing overhead costs= 146000* 8.88= $ 1296480

Actual Overhead- Applied Overhead= $1,301,980-$ 1296480= $5500

3-a)Underapplied overhead for the year= $ 5500

3-b) If the overhead is underapplied and it is corrected by increasing  Cost of Goods Sold so it reduces net income. Similarly If the overhead is Overapplied and it is corrected by decreasing  Cost of Goods Sold so it increases net income