17-3TI - Horngren'S Financial And Managerial Accounting

Question

Question: Smith Company expected to incur \(10,000 in manufacturing overhead costs and use 4,000 machine hours for the year. Actual manufacturing overhead was \)9,700, and the company used 4,250 machine hours.

9. Calculate the predetermined overhead allocation rate using machine hours as the allocation base.

10. How much manufacturing overhead was allocated during the year?

Step-by-Step Solution

Answer

Answer: 

Predetermined overhead allocation rate is $2.50 and the allocated manufacturing overhead is $10,625

                

Step 1: Predetermined overhead allocation rate

$$\begin{gathered} \mathbf{\text{Predetermined alloation overhead rate=}}\frac{\mathbf{T}\mathbf{o}\mathbf{t}\mathbf{a}\mathbf{l}\mathbf{ }\mathbf{e}\mathbf{s}\mathbf{t}\mathbf{i}\mathbf{m}\mathbf{a}\mathbf{t}\mathbf{e}\mathbf{d}\mathbf{ }\mathbf{ }\mathbf{o}\mathbf{v}\mathbf{e}\mathbf{r}\mathbf{h}\mathbf{e}\mathbf{a}\mathbf{d}\mathbf{ }\mathbf{C}\mathbf{o}\mathbf{s}\mathbf{t}}{\mathbf{T}\mathbf{o}\mathbf{t}\mathbf{a}\mathbf{l}\mathbf{ }\mathbf{e}\mathbf{s}\mathbf{t}\mathbf{i}\mathbf{m}\mathbf{a}\mathbf{t}\mathbf{e}\mathbf{d}\mathbf{ }\mathbf{q}\mathbf{u}\mathbf{a}\mathbf{n}\mathbf{t}\mathbf{i}\mathbf{t}\mathbf{y}\mathbf{ }\mathbf{o}\mathbf{f}\mathbf{ }\mathbf{t}\mathbf{h}\mathbf{e}\mathbf{ }\mathbf{o}\mathbf{v}\mathbf{e}\mathbf{r}\mathbf{h}\mathbf{e}\mathbf{a}\mathbf{d}\mathbf{ }\mathbf{a}\mathbf{l}\mathbf{l}\mathbf{o}\mathbf{c}\mathbf{a}\mathbf{t}\mathbf{i}\mathbf{o}\mathbf{n}\mathbf{ }\mathbf{r}\mathbf{a}\mathbf{t}\mathbf{e}} \\ \mathbf{\text{ = }}\frac{\mathbf{\$}\mathbf{10}\mathbf{,}\mathbf{000}}{\mathbf{4000}} \\ \mathbf{\text{ =\$2.50}} \end{gathered}$$

Step 2: Manufacturing overhead allocation during the year

$$\begin{gathered} \mathbf{\text{ allocated manufacturing overhead = Predetermined allocation Overhead rate×Actual quantity of the allocation base}} \\ \mathbf{\text{ = \$2.50×\$4,250}} \\ \mathbf{\text{ =\$10,625}} \end{gathered}$$