Agassi Company uses a job order cost system in each of its three manufacturing departments. Manufacturing overhead is applied to jobs on the basis of direct labor cost in Department D, direct labor hours in Department E, and machine hours in Department K. In establishing the predetermined overhead rates for 2014, the following estimates were made for the year. Department D E K Manufacturing overhead $1,200,000 $1,500,000 $900,000 Direct labor costs $1,500,000 $1,250,000 $450,000 Direct labor hours 100,000 125,000 40,000 Machine hours 400,000 500,000 120,000 During January, the job cost sheets showed the following costs and production data. Department D E K Direct materials used $140,000 $126,000 $78,000 Direct labor costs $120,000 $110,000 $37,500 Manufacturing overhead incurred $ 99,000 $124,000 $79,000 Direct labor hours 8,000 11,000 3,500 Machine hours 34,000 45,000 10,400 Instructions (a) Compute the predetermined overhead rate for each department.
(b) Compute the total manufacturing costs assigned to jobs in January in each department.
(c) Compute the under- or overapplied overhead for each department at January 31.

Agassi Company

   Department                                        D             E             K

a) Predetermined overhead rate     $0.80       $1.20      $7.50

b) Total manufacturing costs assigned to jobs in each department:

Department                                D                   E                  K

Direct materials used           $140,000     $126,000        $78,000

Direct labor costs                 $120,000      $110,000        $37,500

Manufacturing overhead

    applied                            $ 96,000       $13,200        $78,000

Total manufacturing costs $356,000    $249,200      $193,500

c) Under-or overapplied overhead for each department:

Department                                D                   E                  K

Manufacturing overhead

    incurred                         $ 99,000      $124,000        $79,000

Manufacturing overhead

    applied                          $ 96,000        $13,200        $78,000

Under-applied                      $3,000       $110,800           $1,000

Explanation:

a) Data and Calculations:

Estimates:

Department                                D                   E                    K

Manufacturing overhead $1,200,000    $1,500,000    $900,000

Direct labor costs             $1,500,000    $1,250,000    $450,000

Direct labor hours                 100,000          125,000         40,000

Machine hours                     400,000         500,000       120,000

Application of overhead  

Department D = Direct labor cost

Department E = Direct labor hours

Department K =  Machine hours

Department                                D           E          K

Overhead application rate     $0.80    $1.20   $7.50

January actual cost data:

Department                                D                   E                    K

Direct materials used         $140,000    $126,000        $78,000

Direct labor costs               $120,000     $110,000        $37,500

Manufacturing overhead

    incurred                         $ 99,000    $124,000        $79,000

Direct labor hours                   8,000          11,000            3,500

Machine hours                      34,000        45,000           10,400

Overhead applied:

Department D = Overhead rate * direct labor costs

= $0.80 * $120,000

= $96,000

Department E = Overhead rate * direct labor hours

= $1.20 * 11,000

= $13,200

Department K = Overhead rate * machine hours

= $7.50 * 10,400

= $26,250

d. the economy will face inflation.

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