Question P2-4A

(a) Compute the predetermined overhead rate for each department

| Department | | D | E | K | Manufacturing overhead | $ 1,200,000 | $ 1,500,000 | $ 900,000 | Direct labor costs | $ 1,500,000 | $ 1,250,000 | $ 450,000 | Direct labor hours | 100,000 | 125,000 | 40,000 | Machine hours | 400,000 | 500,000 | 120,000 |

* Department D uses direct labor costs * Department E uses direct labor hours * Department K uses machine hours

Predetermined overhead rates =

Department D = $ 1,200,000 ÷ $ 1,500,000 (direct labor costs) = 0.80 = 80 % of direct labor costs

Department E = $ 1,500,000 ÷ $ 125,000 (direct labor hours) = $ 12.00 per direct labor hours

Department K = $ 900,000 ÷ $ 120,000 (machine hours) = $ 7.50 per machine hour
(b) Compute the total manufacturing costs assigned to jobs in January in each department

| Department | | D | E | K | Direct materials used | $ 140,000 | $ 126,000 | $ 78,000 | Direct labor costs | $ 120,000 | $ 110,000 | $ 37,500 | Manufacturing overhead incurred | $ 99,000 | $ 124,000 | $ 79,000 | Direct labor hours | 8,000 | 11,000 | 3,500 | Machine hours | 34,000 | 45,000 | 10,400 |

Overhead applied:
Department D = $ 120,000 x 80% of direct labor costs = $ 96,000

Department E = 11,000 x $ 12.00 per direct labor hours = $ 132,000

Department K = 10,400 x $ 7.50 per machine hours = $ 78,000

Manufacturing costs | Department | | D | E | K | Direct materials | $ 140,000 | $ 126,000 | $ 78,000 | Direct labors | $ 120,000 | $ 110,000 | $ 37,500 | Overhead applied | $ 96,000 | $ 132,000 | $ 78,000 | Total manufacturing costs | $ 356,000 | $ 368,000 | $ 193,500 |

(c) Compute the under – or over applied overhead for each department at January 31

Department D = $ 120,000 x 80% of direct labor costs = $ 96,000
Compare to actual manufacturing overhead, $ 99,000
= $ 96,000 - $ 99,000
= $ 4,000 under applied

Department E = 11,000 x $ 12.00 per direct labor hours = $ 132,000
Compare to actual manufacturing overhead, $ 124,000
= $ 132,000 - $ 124,000
= $ 8,000 (over applied)

Department K = 10,400 x $ 7.50 per machine hours = $ 78,000
Compare to actual manufacturing overhead, $ 79,000
= $ 78,000 - $ 79,000
= $ 1,000 under applied