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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Calculating Departmental Overhead Rates and Applying Overhead to Production

At the beginning of the year, Glaser Company estimated the following:

Chapter 4, Problem 40E, Calculating Departmental Overhead Rates and Applying Overhead to Production At the beginning of the , example  1

Glaser uses departmental overhead rates. In the assembly department, overhead is applied on the basis of direct labor hours. In the testing department, overhead is applied on the basis of machine hours. Actual data for the month of March are as follows:

Chapter 4, Problem 40E, Calculating Departmental Overhead Rates and Applying Overhead to Production At the beginning of the , example  2

Required:

  1. 1. Calculate the predetermined overhead rates for the assembly and testing departments.
  2. 2. Calculate the overhead applied to production in each department for the month of March.
  3. 3. By how much has each department’s overhead been overapplied? Underapplied?

1.

To determine

Calculate the predetermined overhead rate for the assembly and testing departments.

Explanation

Predetermined Overhead Rate:

The amount which is calculated at the beginning of the accounting year for a related activity by dividing the total estimated annual overhead by estimated annual activity level is known as the predetermined overhead rate.

Use the following formula to calculate predetermined overhead rate assembly department:

Assemblydepartmentoverheadrate=EstimatedannualoverheadEstimatedannualactivitylevel

Substitute $338,000 for estimated annual overhead and 130,000 direct labor hours (DLH) for estimated annual activity level in the above formula.

Assemblydepartmentoverheadrate=$338,000130,000DLH=2.6

Therefore, assembly department overhead rate is 2

2.

To determine

Calculate the overhead applied to production in each department for the month of March.

3.

To determine

Calculate the amount of overapplied or underapplied overhead for each department.

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