Question: An electrical component manufacturer has selected direct labor hours as an application base .They plan to sell 35,000 units of copper tubing although the factory has the capacity to produce 40,000 units under the normal circumstances.
Overheads were initially estimated as follows:
- Indirect material and supplies ............................$96,200
- Repairs and maintenance ..................................$24,100
- Plant service contracts ....................................$37,000
- Refurbishing cost ............................................$89,100
- Machinery depreciation.....................................$185,000
- Factory insurance ...........................................$18,200
- Property taxes ...............................................$4,500
- Heat, light and power ......................................$52,700
- Miscellaneous factory overheads .......................$6,000
- Indirect Labor ................................................$120,000
- Materials .......................................................$80,000
- Transportation ...............................................$25,000
- Rent ............................................................$40,000
- Security cost ................................................$15,000
All overhead cost except depreciation, property taxes and miscellaneous factory overhead are expected to increase by 10% during the year. Depreciation should increase by 12% and a 20% increase in property taxes and miscellaneous overhead is expected. A total of 55,600 direct labor hours was estimated to produce 35,000units of copper tubing.
a) Determine the total estimated overhead
b) Calculate the predetermined overhead rate
c) Calculate the overhead application rate if 60,000 direct labor hours was estimated to be used in production .Ascertain applied to the job if it took 120 direct labor hours.
d) How do you dispose of under or over applied manufacturing overhead at the end of the period and why is this done?