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.