PROBLEM 17.4A Job Order Costing: A Comprehensive Problem

Greenway Irrigation Systems uses job order costing and applies manufacturing overhead to individual jobs by using predetermined overhead rates. In the Fabrication Department, overhead is applied on the basis of machine-hours, and in the Installation Department, it is applied on the basis of direct labor hours. At the beginning of the current year, management made the following budget estimates as a step toward determining the overhead application rates.

Fabrication Installation Direct labor $132,000 $300,000 Manufacturing overhead $600,000 $180,000 Machine-hours 8,000 1,200 Direct labor hours 6,000 15,000

Production of a 5,350 linear-foot irrigation system for Thompson Orchards (job no. 399) was started and completed in March of the current year. Cost records for this job reveal the following information.

Fabrication Installation Job no. 399 (5,350 linear-foot system): Cost of materials used on job $7,200 $3,600 Direct labor cost $1,800 $9,600 Direct labor hours 80 450 Machine-hours 60 20

Instructions

Assume that actual overhead costs for the year were $612,000 in the Fabrication Department, and $175,000 in the Installation Department. Assume also that actual machine-hours in the Fabrication Department were 8,200, and actual direct labor hours in the Installation Department were 14,500 during the year. On the basis of this information, determine the over- or underapplied overhead in each department for the year.