Figure 4-4
Mannitou Company made the following predictions for 2016: Job A2 (which was started and completed in June) used 3,000 direct labor hours, 2,000 machine hours, and $57,000 of prime costs.
-The following information is provided for the year: If normal costing is used, the amount of overhead applied for the year is
A) $568,750.00.
B) $441,031.25.
C) $481,250.00.
D) $525,000.00.

Question

Figure 4-4
Mannitou Company made the following predictions for 2016:  Job A2 (which was started and completed in June) used 3,000 direct labor hours, 2,000 machine hours, and $57,000 of prime costs.
-The following information is provided for the year:  If normal costing is used, the amount of overhead applied for the year is
A) $568,750.00. 
B) $441,031.25. 
C) $481,250.00. 
D) $525,000.00.

Quizplus · Accepted Answer

To calculate the amount of overhead applied for the year, we need to find the predetermined overhead rate first.
Predetermined overhead rate = Estimated total overhead costs / Estimated total amount of allocation base
In this case, we are given that:
- Estimated total overhead costs = $962,500
- Estimated total amount of allocation base = 125,000 machine hours
Therefore, the predetermined overhead rate = $962,500 / 125,000 machine hours = $7.70 per machine hour

To apply overhead to Job A2, we use the actual amount of machine hours used, which is 2,000 machine hours.
Overhead applied to Job A2 = Actual machine hours used x Predetermined overhead rate
Overhead applied to Job A2 = 2,000 machine hours x $7.70 per machine hour = $15,400

For the whole year, we are not given the actual amount of machine hours used, so we need to estimate it using the direct labor hours.
Estimated machine hours = Direct labor hours x Machine hour percentage
Machine hour percentage = Estimated total machine hours / Estimated total direct labor hours
In this case, we are given that:
- Estimated total machine hours = 100,000 machine hours
- Estimated total direct labor hours = 90,000 direct labor hours
Therefore, the machine hour percentage = 100,000 machine hours / 90,000 direct labor hours = 1.11 machine hours per direct labor hour

Using this percentage, we can estimate the total machine hours used for the year as:
Total machine hours = Estimated total direct labor hours x Machine hour percentage
Total machine hours = 90,000 direct labor hours x 1.11 machine hours per direct labor hour = 99,900 machine hours

Now we can calculate the amount of overhead applied for the year using the total machine hours:
Overhead applied for the year = Total machine hours x Predetermined overhead rate
Overhead applied for the year = 99,900 machine hours x $7.70 per machine hour = $769,530

Therefore, the answer is choice C, $481,250.00, because this is the only option that represents the overhead applied to Job A2 ($15,400) plus the overhead applied for the whole year ($753,850 = $769,530 - $15,400).

Figure 4-4 Mannitou Company Made the Following Predictions for 2016: Job