Adams Manufacturing allocates overhead to production on the basis of direct labor costs. At the beginning of the year, Adams estimated total overhead of $392,400; materials of $408,000 and direct labor of $218,000. During the year Adams incurred $415,400 in materials costs, $410,800 in overhead costs and $222,000 in direct labor costs. Compute the amount of under- or overapplied overhead for the year.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
![### Overhead Allocation in Manufacturing
**Adams Manufacturing** allocates overhead to production on the basis of direct labor costs. At the beginning of the year, Adams estimated the following:
- Total overhead: $392,400
- Materials: $408,000
- Direct labor: $218,000
During the year, Adams incurred the following actual costs:
- Materials: $415,400
- Overhead: $410,800
- Direct labor: $222,000
The task is to compute the amount of under- or overapplied overhead for the year based on these estimates and actuals.
#### Multiple Choice Options:
1. $11,200 overapplied.
2. $18,400 overapplied.
3. $11,200 underapplied.
4. $18,400 underapplied.
5. $4,600 underapplied.
To understand the outcome, let’s break down the calculations:
1. **Calculate the predetermined overhead rate (based on estimates):**
\[
\text{Estimated Overhead} / \text{Estimated Direct Labor} = \$392,400 / \$218,000 = 1.8
\]
2. **Apply the predetermined overhead rate to the actual direct labor costs:**
\[
\text{Applied Overhead} = \text{Predetermined Overhead Rate} \times \text{Actual Direct Labor} = 1.8 \times \$222,000 = \$399,600
\]
3. **Determine the difference between applied overhead and actual overhead:**
\[
\text{Difference} = \text{Actual Overhead} - \text{Applied Overhead} = \$410,800 - \$399,600 = \$11,200
\]
Since the actual overhead is higher than the applied overhead, the overhead is **underapplied**. Thus, the correct answer is:
- $11,200 underapplied.
Use this analysis to inform decisions on overhead cost management and control within manufacturing settings.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F513f67aa-7739-47c0-98db-8fe9a6d204ee%2F04496b8d-22ba-422d-8ef5-12095ff0df5c%2Fa49s1qs_processed.jpeg&w=3840&q=75)
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
