Question
Northcoast Manufacturing Company, a small manufacturer of parts used in appliances, has just completed its first year of operations. The company's controller, Vic Trainor, has
Northcoast Manufacturing Company, a small manufacturer of parts used in appliances, has just completed its first year of operations. The company's controller, Vic Trainor, has been reviewing the actual results for the year and is concerned about the application of factory overhead. Trainor is using the following information to assess its manufacturing operations.
Northcoast's equipment consists of several machines with a combined cost of $2,200,000 and no residual value. Each machine has an output of five units of product per hour and a useful life of 20,000 hours.
Selected actual data of Northcoast's operations for the year just ended is presented in the opposite column.
Products manufactured
650,000 units
Machine use
130,000 hours
Direct labor usage
35,000 hours
Labor rate
$15 per hour
Total overhead
$1,130,000
Cost of goods sold
$1,720,960
Finished goods inventory (at year end)
$430,240
Work-in-process inventory (at year end)
$0
Total overhead is applied to direct labor cost using a predetermined plant-wide rate.
The budgeted activity for the year included 20 employees, each working 1,800 productive hours per year to produce 540,000 units of product. The machines are highly automated, and each employee can operate two to four machines simultaneously. Normal activity is for each employee to operate three machines. Machine operators are paid $15 per hour.
Budgeted overhead costs for the past year for various levels of activity are shown in the table below.
Northcoast Manufacturing Company
Budgeted Annual Costs for Total Overhead
Units of Product
360,000
540,000
720,000
Labor hours
30,000
36,000
42,000
Machine hours
72,000
108,000
144,000
Total overhead costs
Plant supervision
$70,000
$70,000
$70,000
Plant rent
40,000
40,000
40,000
Equipment depreciation
288,000
432,000
576,000
Maintenance
42,000
51,000
60,000
Utilities
144,600
216,600
288,600
Indirect material
90,000
135,000
180,000
Other costs
11,200
16,600
22,000
Total
$685,800
$961,200
$1,236,600
Question
How much is Northcoast's overhead over/underapplied?
- A.
- $195,500 overapplied.
- B.
- $168,800 underapplied.
- C.
- $168,800 overapplied.
- D.
- $195,500 underapplied.
Directions: Select the best answer.
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Accounting Information For Business Decisions
Authors: Loren A Nikolai, Billie Cunningham, John D Bazley
3rd Edition
1111066884, 9781111066888
