The following account balances at the beginning of January were selected from the general ledger of Fresh Bagel Manufacturing Company: Additional data:
1) Actual manufacturing overhead for January amounted to $65,500.
2) Total direct labor cost for January was $64,000.
3) The predetermined manufacturing overhead rate is based on direct labor cost. The budget for the year called for $255,000 of direct labor cost and $382,500 of manufacturing overhead costs.
4) The only job unfinished on January 31 was Job No. 151, for which total direct labor charges were $6100 (1700 direct labor hours)and total direct material charges were $15,000.
5) Cost of direct materials placed in production during January totaled $123,900. There were no indirect material requisitions during January.
6) January 31 balance in raw materials inventory was $35,400.
7) Finished goods inventory balance on January 31 was $35,000.
Has manufacturing overhead been overallocated or underallocated and by what amount as of January 31?

Question

The following account balances at the beginning of January were selected from the general ledger of Fresh Bagel Manufacturing Company:  Additional data:
1) Actual manufacturing overhead for January amounted to $65,500.
2) Total direct labor cost for January was $64,000.
3) The predetermined manufacturing overhead rate is based on direct labor cost. The budget for the year called for $255,000 of direct labor cost and $382,500 of manufacturing overhead costs.
4) The only job unfinished on January 31 was Job No. 151, for which total direct labor charges were $6100 (1700 direct labor hours)and total direct material charges were $15,000.
5) Cost of direct materials placed in production during January totaled $123,900. There were no indirect material requisitions during January.
6) January 31 balance in raw materials inventory was $35,400.
7) Finished goods inventory balance on January 31 was $35,000.
Has manufacturing overhead been overallocated or underallocated and by what amount as of January 31?

Quizplus · Accepted Answer

To determine if manufacturing overhead has been overallocated or underallocated, we need to compare actual manufacturing overhead with applied manufacturing overhead. We can calculate applied manufacturing overhead by using the predetermined overhead rate:

Predetermined overhead rate = Estimated manufacturing overhead cost / Estimated direct labor cost
Predetermined overhead rate = $382,500 / $255,000
Predetermined overhead rate = $1.50 per direct labor dollar

We can then use the predetermined overhead rate to apply overhead to production based on actual direct labor cost:

Applied manufacturing overhead = Predetermined overhead rate × Actual direct labor cost
Applied manufacturing overhead = $1.50 × $64,000
Applied manufacturing overhead = $96,000

Comparing applied manufacturing overhead with actual manufacturing overhead, we get:

Overhead variance = Actual manufacturing overhead − Applied manufacturing overhead
Overhead variance = $65,500 − $96,000
Overhead variance = $30,500 underallocated

Therefore, the answer is A) $30,500 overallocated.

The Following Account Balances at the Beginning of January Were