MORIN CORPORATION

The MORIN CORPORATION uses a job order costing system. There are two departments, machining and finishing. The company uses normal costing, in which it applies overhead rather than using actual overhead in the costing of its products. The 2017 budget for the company is as follows:

Machining Department Finishing Department

Manufacturing overhead costs $10,000,000 $8,000,000

Direct manufacturing labor costs $1,000,000 $4,000,000

Direct manufacturing labor hours 30,000 160,000

Machine hours 200,000 33,000

Required:

1. Explain why a company would use normal costing (i.e., a predetermined overhead rate for costing overhead) rather than the actual costing. What is the difference?

2. Assume that the company uses individual department predetermined rates for overhead with direct labor cost as the cost driver in each department. Compute the predetermined overhead rates for each department.

3. During the month of January, 2017, 200 units in Job 101 were produced. The job cost sheet for Job 101 shows the following:

Machining Department Finishing Department

Manufacturing overhead costs $14,000 $3,000

Direct manufacturing labor costs $600 $1,250

Direct manufacturing labor hours 30 50

Machine hours 130 10

Compute the total manufacturing overhead cost per unit using department overhead rates.

4. Actual amounts reported at the end of 2017 are as follows:

Machining Department Finishing Department

Manufacturing overhead costs $11,200,000 $7,900,000

Direct manufacturing labor costs $950,000 $4,100,000

Machine hours 220,000 32,000

Compute the over or underallocated (applied) overhead for 2017.

5. How should the MORIN CORPORATION account for the under/overapplied overhead for 2017?