Was the overhead underallocated or overallocated? By how much?
Transcribed Image Text:Beginning Balance
$14,000
$27,000
Ending Balance
$22,000
$9,000
Raw materials
Work in process
Finished goods
$62,000
$77,000
The company applies overhead to jobs using a predetermined overhead rate based on machine-hours. At the beginning of the year, the company
estimated that it would work 33,000 machine-hours and incur $231,000 in manufacturing overhead cost. The following transactions were recorded for the
year:
• Raw materials were purchased, $315,000.
• Raw materials were requisitioned for use in production, $307,000 ($281,000 direct and $26,000 indirect).
The following employee costs were incurred: direct labor, $377,000; indirect labor, $96,000; and administrative salaries, $172,000.
Selling costs, $147,000.
Factory utility costs, $10,000.
Depreciation for the year was $127,000 of which $120,000 is related to factory operations and $7,000 is related to selling, general, and
administrative activities.
• Manufacturing overhead was applied to jobs. The actual level of activity for the year was 34,000 machine-hours.
• Sales for the year totaled $1,253,000.
Definition Definition Indirect costs incurred while producing goods or services. Overhead costs cannot be directly attributed to products or services. Overhead includes indirect material cost, indirect labor cost, rent, utilities expenses, and depreciation. Since these costs directly affect the profitability of a company, managing overhead becomes an important task for management.
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