Question

Graham Manufacturing is a small manufacturer that uses machine-hours as its activity base for assigned overhead costs to jobs. The company estimated the following amounts for 2013 for the company and for Job 62:
Company Job 62
Direct materials $60,000 $4,500
Direct labor $25,000 $2,500
Manufacturing overhead costs $72,000
Machine hours 80,000 1,350
During 2013, the actual machine-hours totaled 84,000, and actual overhead costs were $71,000.



Compute the predetermined overhead rate.
Predetermined overhead rate $pixel.gif per machine hour



Compute the total manufacturing costs for Job 62.
Total manufacturing costs $pixel.gif



How much overhead is over or underapplied for the year for the company? State amount and whether it is over- or underapplied.
Overhead $pixel.gifpixel.gif



If Graham Manufacturing sells Job 62 for $14,000, compute the gross profit.
Gross profit $

Answer 1

Answer:

Part 1. Compute the predetermined overhead rate

Predetermined overhead rate is $ 0.90 per Machine Hour

Part 2. Compute the total manufacturing costs for Job 62

Total manufacturing costs is $8,215

Part 3. How much overhead is over or underapplied for the year for the company?

Overapplied

Amount of Overapplication is  $ 4,600

Part 3. If Graham Manufacturing sells Job 62 for $14,000, compute the gross profit

Gross Profit  is $ 5,785

Explanation:

Part 1. Compute the predetermined overhead rate

Predetermined overhead rate = Budgeted Total Overheads / Budgeted Activity

                                                  = $72,000 / 80,000

                                                  = $ 0.90 per Machine Hour

Part 2. Compute the total manufacturing costs for Job 62

Direct materials                                      $4,500

Direct labor                                             $2,500

Overheads ( $ 0.90 × 1,350)                  $1,215

Total manufacturing costs                     $8,215

Part 3. How much overhead is over or underapplied for the year for the company?

Applied Overheads = Predetermined overhead rate × actual machine-hours

                                  = $ 0.90 per Machine Hour × 84,000

                                  = $ 75,600

Actual Overheads    = $71,000 (given)

Applied Overheads > Actual Overheads

Therefore Overheads are Overapplied

Amount of Overapplication is $ 75,600 - $71,000 = $ 4,600

Part 3. If Graham Manufacturing sells Job 62 for $14,000, compute the gross profit

Sales                                                                                             $14,000

Less Cost of Goods Sold

Opening Stock                                                       0

Add Cost of Manufactured Goods                  $8,215

Less Closing Stock                                                0                     $8,215

Gross Profit                                                                                   $ 5,785