Allocation of OverheadLund Products, Inc.

Allocation of Overhead

Lund Products, Inc., uses a predetermined overhead rate in its production, assembly, and testing departments. One rate is used for the entire company; it is based on machine hours. The rate is determined by analyzing data from the previous year to determine the percentage change in costs.

Thus the 20×9 overhead rate will be based on the percentage change multiplied by the 20×8 costs. Lise Jensen is about to compute the rate for 20×9 using the following data. 

20×7

20×8

Machine hours

38,000

41,800

Overhead costs  

Indirect materials

$44,500

$57,850

Indirect labor

21,200

25,440

Supervision

37,800

41,580

Utilities

9,400

11,280

Labor-related costs

8,200

9,020

Depreciation, factory

9,800

10,780

Depreciation, machinery

22,700

27,240

Property taxes

2,400

2,880

Insurance

1,600

1,920

Miscellaneous overhead

$162,000

$192,830

Total overhead

4,400

4,840

In 20×9, the cost of indirect materials is expected to increase by 30 percent over the previous year. The cost of indirect labor, utilities, machinery depreciation, property taxes, and insurance is expected to increase by 20 percent over the previous year. All other expenses are expected to increase by 10 percent over the previous year. Machine hours for 20×9 are estimated at 45,980.

Required

1. Compute the projected costs and the overhead rate for 20×9 using the information about expected cost increases. (Round your answer to three decimal places.)

2. During 20×9, Lund Products completed the following jobs using the machine hours shown.

Job No.

Machine Hours

Job No.

Machine Hours

H–142

7,840

H–201

10,680

H–164

5,260

H–218

12,310

H–175

8,100

H–304

2,460

Determine the amount of overhead applied to each job. What was the total overhead applied during 20×9? (Round answers to the nearest dollar.)

3. Actual overhead costs for 20×9 were $234,485. Was overhead under applied or over applied in 20×9? By how much? Should the Cost of Goods Sold account be increased or decreased to reflect actual overhead costs?

4. At what point during 20×9 was the overhead rate computed? When was it applied? Finally, when was under applied or over applied overhead determined and the Cost of Goods Sold account adjusted to reflect actual costs?

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