EXERCISE 2–10 Predetermined Overhead Rate; Applying Overhead; Underapplied or Overapplied Overhead [ LO3 , LO5 , LO8 ]

Estimated cost and operating data for three companies for the upcoming year follow:

Company X Company Y Company Z Direct labor-hours .................................... 80,000 45,000 60,000 Machine-hours ......................................... 30,000 70,000 21,000 Direct materials cost ................................ $400,000 $290,000 $300,000 Manufacturing overhead cost .................. $536,000 $315,000 $480,000 Predetermined overhead rates are computed using the following allocation bases in the three companies:

Allocation Base Company X ................................ Direct labor-hours Company Y ................................ Machine-hours Company Z ................................ Direct materials cost Required:

1. Compute each company’s predetermined overhead rate.

2. Assume that Company X works on three jobs during the upcoming year. Direct labor-hours recorded by job are: Job 418, 12,000 hours; Job 419, 36,000 hours; and Job 420, 30,000 hours. How much overhead will the company apply to Work in Process for the year? If actual overhead costs total

$530,000 for the year, will overhead be underapplied or overapplied? By how much?