Question 2

The following information relates to Claystone Pty Ltd for July 2021:

Actual direct labour costs $60,000

Actual direct labour rate per hour $12

Factory overhead rate per direct labour hour $15

Factory overhead incurred $70,000

As part of the cost planning and cost control of operations and activities, management is concerned regarding the applied overhead rate used.

Required

1. Give three example of costs which are classified as manufacturing overhead and justify why they are classified as manufacturing overhead. (3 marks)

2. Identify whether there is an underapplied or overapplied overhead. Assuming underapplied or overapplied overhead is transferred to cost of goods sold at the end of the period, which would be the adjustment to the cost of goods sold account? (6 marks)

3. Considering the company had budgeted a factory overhead of $90,000 and 6,000 hours of direct labour, identify whether there is a numerator and/or denominator reason leading to an underapplied or overapplied overhead, specifically for this company. (6 marks)