PROBLEM 3–15A Activity-Based Costing Cost Flows [LO2, LO3, LO5]

Munoz Corporation uses activity-based costing to determine product costs for external financial reports. At the beginning of the year, management made the following estimates of cost and activity in the company’s five activity cost pools:

Activity Estimated Expected Activity Cost Pool Measure Overhead Cost Activity Labor related ....................... Direct labor-hours $210,000 35,000 DLHs Purchase orders .................. Number of orders $72,000 900 orders Product testing .................... Number of tests $168,000 1,400 tests Template etching ................ Number of templates $315,000 10,500 templates General factory ................... Machine-hours $840,000 70,000 MHs Required:

1. Compute the activity rate (i.e., predetermined overhead rate) for each of the activity cost pools.

2. During the year, actual overhead cost and activity were recorded as follows:

Activity Cost Pool Actual Overhead Cost Actual Activity Labor related ............................................... $ 205,000 32,000 DLHs Machine related .......................................... 74,000 950 orders Product testing ............................................ 160,000 1,300 tests Template etching ........................................ 338,000 11,500 relays General factory ........................................... 825,000 68,000 MHs Total manufacturing overhead cost ............. $1,602,000

a. Prepare a journal entry to record the incurrence of actual manufacturing overhead cost for the year

(credit Accounts Payable). Post the entry to the company’s Manufacturing Overhead T-account.

b. Determine the amount of overhead cost applied to production during the year.

c. Prepare a journal entry to record the application of manufacturing overhead cost to Work in Process for the year. Post the entry to the company’s Manufacturing Overhead T-account.

d. Determine the amount of underapplied or overapplied manufacturing overhead for the year.

3. The actual activity for the year was distributed among the company’s four products as follows:

CHECK FIGURE

(2d) Total overhead underapplied: $17,000

a. Determine the total amount of overhead cost applied to each product.

b. Does the total amount of overhead cost applied to the products above tie in to the T-accounts in any way? Explain.