B3 Company is a manufacturing firm that uses job-order costing. The company applies overhead to jobs using a predetermined overhead rate based on machine-hours. At the beginning of the year, the company estimated that it would work 24,000 machine-hours and incur $216,000 in manufacturing overhead cost. During the year, manufacturing overhead was applied to jobs. The actual level of activity for the year was 25,000 machine-hours and actual overhead costs were $227,000.

Required:

a. Compute the predetermined overhead rate.

b. Job 124 utilized $200 of Direct Materials and $500 of Direct Labor while utilizing 100 machine hours to complete the job. What is the total job cost for Job 124?

c. Compute overhead applied for the year.

d. Was the overhead under- or overapplied? By how much? What can be done with the difference? What should be done in this case?

a. Predetemined overhead rate = Estimated MOH/ Estimated level of activity

(216000/24000)=9

b. Cost of Job 124 includes the following:

DM 200
DL 500
OH (100*9) 900
Total Cost 1,600

c. Overhead applied = 9*25,000=225,000

d. Overhead was underapplied by an amount of 2,000 (227,000-225,000)

The underapplied amount can be closed to cost of sales or prorated to WIP, FG and cost of sales. In this case the amount is immaterial so it should be closed to cost of sales