Applying Overhead

Dane Co. applies manufacturing overhead to jobs based on machine hours used. At the beginning of the year, the company estimated that overhead costs would total $86,000 for the year, and that the machine would run for 4,000 hours during the year.

1. Determine the pre-determined overhead rate for the year. (This will be used to assign overhead to the jobs in parts 2 and 3.)

2. One job that ran during the month of March used 120 machine hours. The job also incurred materials costs of $750 and direct labor cost of $300 (20 hours at a labor rate of $15 per hour). The job consisted of 120 units. Determine the total manufacturing cost for the job, and the total cost per unit for items produced in this job.

3. A second job that ran during the month used 180 machine hours, incurred $980 of direct materials cost, and direct labor cost of $540 (36 hours at $15 per labor hour). The job consisted of 175 units. Determine the total manufacturing cost for the job, and the total cost per unit for items produced in this job.

4. Assume the jobs described in parts 2 and 3 were the only jobs worked on during the entire month of March. (The overhead was applied to these 2 jobs is the only applied overhead for the month.) Actual overhead costs for the month totaled $8,000. Determine the amount of under- or over-applied overhead for the month AND label it as over- or under-applied.

Activity-Based Costing

The purchasing department of a manufacturing firm has decided to apply its costs to jobs using an activity based costing system. Its costs of $490,000 are split among the three major activities:

Activity                                               Cost                 Allocation Measure                 Total Activity

Finding suppliers                           $ 300,000              Number of telephone calls      200,000 calls

Issuing purchase orders                 $ 100,000              Number of purchase orders     25,000 orders

Reviewing receiving reports         $   90,000              Number of receiving reports   20,000 reports

1. From the information provided, determine the three allocation rates (one for each cost pool) to be used by an activity based costing system.

2. For one job that was produced by the firm, the following purchasing department activities were completed: 200 phone calls were made, 50 purchase orders were issued, and 40 separate incoming orders (receiving reports) were received. What amount of purchasing department cost would be assigned to this job?