Landis Company uses a job order cost system in each of its two manufacturing departments. Manufacturing overhead is applied to jobs on the basis of direct labor cost in Department A and machine hours in Department B. In establishing the predetermined overhead rates for 2017 the following estimates were made for the year:
During January the job cost sheet showed the following costs and production data: $8,00034,000\begin{array} { l r r } & { \text { Department } } \\& \mathrm { A }& \mathrm { B }\\\text { Direct materials used } & \$195,000& \$ 128,000 \\\text { Direct labor cost } & \$ 195,000 & 110,000 \\\text { Manufacturing overhead incurred } & 100,000 & 135,000 \\\text { Direct labor hours } & 130,000 & 8,400 \\\text { Machine hours } & 8,000 & 34,000\end{array}$ Instructions
(a) Compute the predetermined overhead rate for each department.
(b) Compute the total manufacturing cost assigned to jobs in January in each department.
(c) Compute the balance in the Manufacturing Overhead account at the end of January and indicate whether overhead is over- or underapplied.

Question

Landis Company uses a job order cost system in each of its two manufacturing departments. Manufacturing overhead is applied to jobs on the basis of direct labor cost in Department A and machine hours in Department B. In establishing the predetermined overhead rates for 2017 the following estimates were made for the year:
During January the job cost sheet showed the following costs and production data:

8,00034,000\begin{array} { l r r } & { \text { Department } } \\& \mathrm { A }& \mathrm { B }\\\text { Direct materials used } & \$195,000& \$ 128,000 \\\text { Direct labor cost } & \$ 195,000 & 110,000 \\\text { Manufacturing overhead incurred } & 100,000 & 135,000 \\\text { Direct labor hours } & 130,000 & 8,400 \\\text { Machine hours } & 8,000 & 34,000\end{array}

Instructions
(a) Compute the predetermined overhead rate for each department.
(b) Compute the total manufacturing cost assigned to jobs in January in each department.
(c) Compute the balance in the Manufacturing Overhead account at the end of January and indicate whether overhead is over- or underapplied.

Priscilla Garcia · Accepted Answer

Final Answer :

(a) Predetermined overhead rates:
Department A (using direct labor cost):

$2,100,000÷$1,500,000=140%\$ 2,100,000 \div \$ 1,500,000 = 140 \%

Department B (using machine hours):

$1,400,000÷400,000=$3.50\$ 1,400,000 \div 400,000 = \$ 3.50

per machine hour

(b) Total manufacturing costs by department:

$435,000\begin{array}{ll}\text { Department A: }\\\text { Direct materials } & \$ 195,000 \\ \text { Direct labor cost } & 100,000 \\ \text { Manufacturing overhead applied }(\$ 100,000 \times 140 \%) & 140,000 \\ \text { Total manufacturing costs } & \$ 435,000 \\\end{array}

$357,000\begin{array}{ll}\text { Department B: }\\\text { Direct materials } & \$ 128,000 \\ \text { Direct labor cost } & 110,000 \\ \text { Manufacturing overhead applied }(\$ 34,000 \times \$3.50) & 119,000 \\ \text { Total manufacturing costs } & \$ 357,000 \\\end{array}

(c)
$(a) Predetermined overhead rates: Department A (using direct labor cost): \$ 2,100,000 \div \$ 1,500,000 = 140 \% Department B (using machine hours): \$ 1,400,000 \div 400,000 = \$ 3.50 per machine hour (b) Total manufacturing costs by department: \begin{array}{ll} \text { Department A: }\\ \text { Direct materials } & \$ 195,000 \\ \text { Direct labor cost } & 100,000 \\ \text { Manufacturing overhead applied }(\$ 100,000 \times 140 \%) & 140,000 \\ \text { Total manufacturing costs } & \$ 435,000 \\ \end{array} \begin{array}{ll} \text { Department B: }\\ \text { Direct materials } & \$ 128,000 \\ \text { Direct labor cost } & 110,000 \\ \text { Manufacturing overhead applied }(\$ 34,000 \times \$3.50) & 119,000 \\ \text { Total manufacturing costs } & \$ 357,000 \\ \end{array} (c)$

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