Smith Foundry in Sarnia, Ontario, uses a predetermined manufacturing overhead rate to allocate overhead to individual jobs based on the machine hours required. At the beginning of the year, the company expected to incur the following:
Manufacturing overhead costs ........................................................... $ 560,000
Direct labour cost............................................................................... 1,700,000
Machine hours................................................................................... 80,000
Direct labour cost.............................................................................. $1,230,000
Depreciation on manufacturing plant and
equipment....................................................................................... 490,000
Property taxes on plant.................................................................... 18,500
Sales salaries................................................................................... 24,000
Delivery drivers’ wages............................................................. 16,000
Plant janitors’ wages ................................................................ 11,000
Machine hours......................................................................... 57,000 hours
Requirements
1. Compute Smith’s predetermined manufacturing overhead rate.
2. How much manufacturing overhead was allocated to jobs during the year?
3. How much manufacturing overhead was incurred during the year? Is manufacturing over head underallocated or overallocated at the end of the year? By how much?
4. Were the jobs overcosted or undercosted? By how much?