Chapter 3, Problem 3.25AE

Analyze manufacturing overhead (Learning Objectives 3 & 5)

Smith Foundry in Columbus, Ohio, uses a predetermined manufacturing overhead rate to allocate overhead to individual jobs based on the machine hours required. At the beginning of the year, the company expected to incur the following:

Manufacturing overhead costs	$ 630,000
Direct labor cost	$1,650,000
Machine hours	90,000

At the end of the year, the company had actually incurred the following:

Direct labor cost	$1,230,000
Depreciation on manufacturing plant and equipment	$ 480,000
Property taxes on plant	$ 19,500
Sales salaries	$ 26,500
Delivery drivers’ wages	$ 17,000
Plant janitors’ wages	$ 8,500
Machine hours	56,500 hours

Requirements

1. 1. Compute Smith’s predetermined manufacturing overhead rate.
2. 2. How much manufacturing overhead was allocated to jobs during the year?
3. 3. How much manufacturing overhead was incurred during the year? Is manufacturing overhead underallocated or overallocated at the end of the year? By how much?
4. 4. Were the jobs overcosted or undercosted? By how much?