# Question: Nature Cosmetics Company applies overhead costs on the basis of

Nature Cosmetics Company applies overhead costs on the basis of machine hours. The overhead rate is computed by analyzing data from the previous year to determine the percentage change in costs. Thus, this year’s overhead rate will be based on the percentage change multiplied by last year’s costs.
Last Year
Machine hours .............. 55,360
Indirect labor .............. \$ 23,500
Employee benefits ............ 28,600
Manufacturing supervision ........ 18,500
Utilities ................. 15,000
Factory insurance ............. 7,800
Janitorial services ............ 12,100
Depreciation, factory and machinery ..... 21,300
This year the cost of utilities is expected to increase by 40 percent over the previous year; the cost of indirect labor, employee benefits, and miscellaneous overhead is expected to increase by 30 percent over the previous year; the cost of insurance and depreciation is expected to increase by 20 percent over the previous year; and the cost of supervision and janitorial services is expected to increase by 10 percent over the previous year. Machine hours are expected to total 68,786.

Required
1. Compute the projected costs, and use those costs to calculate the overhead rate for this year. (Round the rate to two decimal places.)
2. Jobs completed during this year and the machine hours used were as follows.
Job no. Machine Hours
2214 ........... 12,300
2215 ........... 14,200
2216 ........... 9,800
2217 ........... 13,600
2218 ........... 11,300
2219 ........... 8,100
Determine the amount of overhead to be applied to each job and to total production during this year.
3. Actual overhead costs for this year were \$165,845. Was overhead underapplied or overapplied? By how much? Should the Cost of Goods Sold account be increased or decreased to reflect actual overhead costs?
4. At what point during this year was the overhead rate computed? When was it applied? Finally, when was underapplied or overapplied overhead determined and the Cost of Goods Sold account adjusted to reflect actual costs?

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