Example of a Homework Problem that Meets the Grading Criteria Please note that the text of the question is included only for illustrative purposes, and that this is not required for homework submitted. PA2-3 Calculating Predetermined Overhead Rates, Recording Manufacturing Cost Flows, and Analyzing Overhead [LO 3, 4, 5] [The following information applies to the questions displayed below.] Tyler Tooling Company uses a job order costing system with overhead applied to products on the basis of machine hours. For the upcoming year, the company estimated its total manufacturing overhead cost at $250,000 and total machine hours at 62,500. During the first month of operations, the company worked on three jobs and recorded the following actual direct materials cost, direct labor cost, and machine hours for each job: Direct materials cost Direct labor cost Machine hours Job 101 $12,000 $18,000 2,000 hours Job 102 $9,000 $7,000 3,000 hours Job 103 $6,000 $6,000 1,000 hours Total $27,000 $31,000 6,000 hours Job 101 was completed and sold for $50,000. Job 102 was completed but not sold. Job 103 is still in process. Actual overhead costs recorded during the first month of operations totaled $25,000. 1. Calculate the predetermined overhead rate POHR = Estimated Total Manufacturing Overhead Cost / Estimated Units in the Allocation Base = $250,000 / 62,500 = $4.00 per machine hour 2. Compute the total manufacturing overhead applied to the Work in Process Inventory account during the month of operations Amount applied = POHR x actual amount of allocation based used = 6,000 hours X $4.00 = $24,000 3. Compute the balance in the Work in Process Inventory account at the end of the first month. Job 103 was the only unfinished job at the end of the first month. The costs associated with the job were: Direct materials $6,000 Direct labor 6,000 Manufacturing Overhead 4,000 Total WIP cost $16,000 (1,000 machine hours X $4.00) 4. How much gross profit would the company report during the first month of operations, before the adjustment for over or underapplied manufacturing overhead? Only Job 101 was completed and sold during the period. The cost of job 101 was: Direct materials $12,000 Direct labor 18,000 Manufacturing Overhead 8,000 Total cost $38,000 (2,000 machine hours X $4.00) The gross profit before the adjustment for over or underapplied manufacturing is: Sales Cost of Goods Sold Gross Profit $50,000 38,000 12,000 5. Determine the balance in the Manufacturing Overhead account at the end of the first month. Is it over- or underapplied? Manufacturing Overhead Actual 25,000 24,000 Applied Balance 1,000 Manufacturing Overhead is underapplied because the actual amount exceeds the amount applied.