Question 3: (10 marks) (B1, C1)

Quds Company uses a job order cost system in each of its two manufacturing departments. Manufacturing overhead is applied to jobs on the basis of direct labor cost in Department A and machine hours in Department B. In establishing the predetermined overhead rates for 2013, the following estimates were made for the year:

Department

A B

Manufacturing overhead $2,100,000 $1,600,000

Direct labor cost 1,400,000 1,200,000

Direct labor hours 100,000 100,000

Machine hours 200,000 400,000

During January, the job cost sheet showed the following costs and production data:

Department

A B

Direct materials used $195,000 $128,000

Direct labor cost 100,000 110,000

Manufacturing overhead incurred 155,000 135,000

Direct labor hours 8,000 8,400

Machine hours 16,000 34,000

Instructions

(a) Compute the predetermined overhead rate for each department. (2 marks)

(b) Compute the total manufacturing cost assigned to jobs in January in each department. (6 marks)

(c) Compute the balance in the Manufacturing Overhead account at the end of January and indicate whether overhead is over- or underapplied. (2 marks)