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During the coming accounting year, Baker Manufacturing, Inc., anticipates the following costs, expenses, and operating data:_______.
Direct material (16,000 lb.) $ 160,000
Direct labor (at $17.50/hr.) 245,000
Indirect material 24,000
Indirect labor 44,000
Sales commissions 68,000
Factory administration 32,000
Non factory administrative expenses 40,000
Other manufacturing overhead* 96,000
*Provides for operating 61,250 machine hours.
a. Compute the predetermined factory overhead rate under three different bases: (1) direct labor hours, (2) direct labor costs, and (3) machine hours. (Round amounts to 2 decimal places.)
b. Assume that actual factory overhead was $308,000 and that Easton Incorporated elected to apply factory overhead to Work in Process based on direct labor hours.

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Answer:

Baker Manufacturing, Inc.

a) Predetermined factory overhead rate under the three different bases:

(1) direct labor hours = $196,000/14,000 = $14 per DLH

(2) direct labor costs = $196,000/$245,000 = $0.80 per DLC

(3) machine hours = $196,000/61,250 = $3.20 per MH

b) Based on the actual factory overhead of $308,000, there will be under-absorption of the factory overhead by $112,000.

Explanation:

a) Data and Calculations:

Direct material (16,000 lb.) $ 160,000

Direct labor (at $17.50/hr.) 245,000

Indirect material 24,000

Indirect labor 44,000

Sales commissions 68,000

Factory administration 32,000

Non factory administrative expenses 40,000

Other manufacturing overhead* 96,000

*Provides for operating 61,250 machine hours.

Factory overhead costs:

Indirect material                           24,000

Indirect labor                                44,000

Factory administration                32,000

Other manufacturing overhead 96,000

Total factory overhead costs $196,000

Estimated direct labor-hours = $245,000/$17.50 = 14,000 hours

a) Predetermined factory overhead rate under the three different bases:

(1) direct labor hours = $196,000/14,000 = $14 per DLH

(2) direct labor costs = $196,000/$245,000 = $0.80 per DLC

(3) machine hours = $196,000/61,250 = $3.20 per MH

b) Actual factory overhead assumed to be $308,000:

Under-absorbed factory overhead = $112,000 ($308,000 - 196,000)

abiolataiwo2015

a. The predetermined factory overhead rate under three different bases: Application base are: Direct labor hours $14, Direct labor costs 80%, Machine hours $3.20.

Predetermined overhead rate:

First step

Total manufacturing overhead:

Total manufacturing overhead=Indirect materials + Indirect labor + Factory admin + Other manufacturing overheads

Total manufacturing overhead= 24,000+44,000+32,000+96,000

Total manufacturing overhead= 196,000

Second step

Method 1

Direct labor hours = 245,000/17.5

Direct labor hours = 14,000

Direct labor costs=196,000/14,000 = $14

Direct labor costs= $14

Method 2

Direct labor cost =Total manufacturing overhead/Direct labor

Direct labor cost = 196,000/245,000

Direct labor cost = 80%

Method 3:

Machine hours = Total manufacturing overhead/Provided operating machine hours

Machine hours = 196,000/61,250

Machine hours = $3.20

b.  Actual factory overhead:

Under-absorbed factory overhead = $308,000 - $196,000

Under-absorbed factory overhead =$112,000

Inconclusion the predetermined factory overhead rate under three different bases: Application base are: Direct labor hours $14, Direct labor costs 80%, Machine hours $3.20.

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