Jane Statton, the accountant for Hobart Happy Critters Ltd (HHCL), is in the process of analysing the company's overhead costs for November. She has gathered the following data for the month:

Labour:

Direct labour hours:

Job no. 77: small koalas 2 600

Job no. 78: large kangaroos 3 000

Job no. 79: small echidnas 2 400

Labour costs:

Direct labour wages $160 000

Indirect labour wages (2 000 hours) 20 000

Supervisory salaries 12 000

Inventories, 1 November:

Direct material and supplies $10 500

Work in process (job no. 77) 54 000

Finished goods 112 500

Purchases of direct material and supplies:

Direct material $135 000

Supplies (indirect material) 15 000

Direct material and supplies requisitioned for production:

Job no. 77 $45 000

Job no. 78 37 500

Job no. 79 25 500

Supplies (indirect material) 12 000

Total $120 000

Production equipment costs:

Power $ 4 100

Repairs and maintenance 1 500

Depreciation 1 500

Other 1 000

Total $ 8 100

Other costs:

Building occupancy costs (heat, light, depreciation etc.):

Factory facilities $8 400

Sales offices 2 600

Administrative offices 2 000

Total $13 000

The job costing system used by the firm uses direct labour hours as the overhead cost driver. In November of the previous year, Statton had prepared the following budget for direct labour and manufacturing overhead costs for the coming year. The plant is capable of operating at 135 000 direct labour hours per year. However, Statton estimates that the normal usage is 120 000 hours in an average year.

Manufacturing overhead budget

Direct labour hours Variable Fixed

100 000 $600 000 $216 000

120 000 720 000 216 000

140 000 840 000 216 000

During November the following jobs were completed:

(a) job number 77: small koalas

(b) job number 78: large kangaroos.

Required:

1. Construct an Excel spreadsheet to:

(a) Calculate the predetermined overhead rate for the current year, using as denominator volumes:

(i) practical capacity

(ii) normal volume.

(b) Calculate the total cost of job number 77, using both overhead rates calculated in part (a).

(c) Calculate the amount of manufacturing overhead applied to job number 79 during November, using both overhead rates.

2. What was the total amount of manufacturing overhead applied during November, using both overhead rates?

3. Use your spreadsheet to:

(a) Calculate the actual manufacturing overhead incurred during November.

(b) Calculate the overapplied or underapplied overhead for November, using both overhead rates. Explain the differences.

4.Which of these denominator volumes is likely to result in accurate estimates of product costs? Explain.