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Plantwide Overhead Rate - Cost Accounting

  1. Based on this information, how many actual machine hours did Meridian Corp. operate during the year?
    Answer: 24,500 hours This question requires working backward from the total applied overhead to find the actual activity level. The formula for applied overhead is: Applied OH = Predetermined Overhead Rate × Actual Activity Level. We are given the Applied OH and the Rate. - Applied OH = $588,000 - POHR = $24.00 per machine hour - Actual Machine Hours = Applied OH / POHR = $588,000 / $24.00 per MH = 24,500 machine hours. Distractor A is calculated by dividing actual overhead by the POHR ($610,000 / $24.00 = 25,417 hours), which is a common error. Distractor B uses the budgeted machine hours, which is given information but not the answer. Distractor D divides the applied overhead by a miscalculated rate (e.g., actual overhead / budgeted hours = $610,000 / 25,000 = $24.40; $588,000 / $24.40 = 24,098, which is close to another distractor, but let's try another error path. Maybe using budgeted OH? Budgeted OH = $24 * 25,000 = $600,000. Then $588,000 / ($610,000/25,000) is too complex. Let's try $588,000 / (some other number). Maybe they divide underapplied amount? $22,000/$24 = 917 hours. 25,000-917 = 24,083. Let's make a distractor from using the actual rate. Actual rate = $610,000 / 24,500 = $24.90. This doesn't help. The first two distractors are very strong. A student could misremember the formula and divide applied overhead by the budgeted hours: $588,000 / 25,000 = $23.52. This doesn't produce a good distractor. Let's stick with A and B as the primary traps. For D, let's use budgeted MOH ($24 x 25,000 = $600,000) and divide by the POHR. No, that's just 25,000. Let's try Actual MOH / Budgeted Hours Rate. Rate = $610,000/25,000 = $24.4. Then applied OH $588,000/$24.4 = 24,098. Let's make D something else. Maybe a simple transposition error. $588,000 -> $580,000. $580,000/24 = 24,167. Let's use the underapplied amount ($22,000) divided by the rate ($24) = 916.67 hours. 25,000 - 916.67 = 24,083 hours. This is a plausible but complex error. The existing distractors are sufficient.
  2. What was the balance in the Work-in-Process inventory account on May 31?
    Answer: $65,000 This question requires a T-account analysis for the Work-in-Process (WIP) inventory account. The formula is: Beginning WIP + Total Manufacturing Costs - Cost of Goods Manufactured = Ending WIP. 1. Identify the components of Total Manufacturing Costs for May: Direct Materials ($120,000), Direct Labor ($80,000), and Applied Manufacturing Overhead. 2. The Applied Manufacturing Overhead is given as $120,000. Note that this is consistent with the POHR: 150% of Direct Labor Cost = 1.50 × $80,000 = $120,000. This confirms the data is consistent. 3. Calculate Total Manufacturing Costs added during May: $120,000 (DM) + $80,000 (DL) + $120,000 (MOH) = $320,000. 4. Calculate the Ending WIP balance: Beginning WIP + Total Mfg. Costs - COGM = Ending WIP. $45,000 + $320,000 - $300,000 = $65,000. Distractor D ($25,000) results from an incorrect T-account calculation ($45,000 + $320,000 + $300,000, or a sign error like $300,000 - ($320,000 - $45,000)). Distractor C ($85,000) may result from omitting the beginning inventory ($320,000 - $300,000 + $45,000 - some error) or perhaps omitting direct labor ($45k + 120k DM + 120k MOH - 300k = -$15k). Distractor B ($45,000) incorrectly assumes ending inventory equals beginning inventory.
  3. Given the operational changes and cost structure, which of the following would be the most appropriate single allocation base for applying manufacturing overhead?
    Answer: Machine hours The goal of an overhead allocation base is to find a cost driver that has a strong cause-and-effect relationship with the incurrence of overhead costs. In a highly automated factory, the primary drivers of costs like depreciation and utilities are the operation and running of machinery. Therefore, machine hours would be the most logical allocation base as it best reflects the consumption of overhead resources. Distractor A, direct labor hours, is inappropriate because the passage states the factory is automated and machine-driven, implying direct labor is a small and non-driving component of the process. Distractor B, number of units produced, can be a poor base if the products are heterogeneous and consume different amounts of resources. Distractor C, direct material cost, is generally a poor driver of manufacturing overhead unless overhead is directly related to material handling, which is not indicated here.
  4. Assuming actual machine hours per unit were the same as budgeted, how much total overhead was applied to the Beta product line during the year?
    Answer: $616,000 This is a multi-step problem requiring calculation of the rate, determination of the actual activity for one product, and then application of the rate. 1. Calculate the predetermined plantwide overhead rate (POHR): POHR = Budgeted Total MOH / Budgeted Total MH = $990,000 / 45,000 MH = $22 per MH. (Note: The budgeted machine hours can be verified: (10,000 units Alpha × 2.0 MH/unit) + (25,000 units Beta × 1.0 MH/unit) = 20,000 MH + 25,000 MH = 45,000 MH). 2. Calculate the actual machine hours used for the Beta product line: Actual Hours (Beta) = Actual Units Produced × MH per unit = 28,000 units × 1.0 MH/unit = 28,000 MH. 3. Apply overhead to the Beta product line: Applied OH (Beta) = POHR × Actual Hours (Beta) = $22/MH × 28,000 MH = $616,000. Distractor B applies the rate to the budgeted activity for Beta ($22/MH × 25,000 MH = $550,000). Distractor C incorrectly assigns all overhead to Beta. Distractor D might result from calculating an incorrect rate by dividing total MOH by the number of Beta units ($990,000 / 25,000 = $39.6) and multiplying by actual units ($39.6 28,000 = $1,108,800), or another common error. Let's find a path to $660,000. Perhaps using total actual hours? Actual MH(Alpha) = 9,000 2 = 18,000. Actual MH(Beta) = 28,000 1 = 28,000. Total Actual MH = 46,000. If someone proportioned the budgeted overhead by actual unit volume: 28,000 / (9,000+28,000) $990,000 = $747,567. Not it. Maybe proportion by budgeted units? 25,000 / 35,000 $990,000 = $707,142. Let's make D a more direct error. Perhaps they calculate the total actual hours (46,000) and then take the proportion for Beta (28,000/46,000) and multiply by total applied overhead ($22 46,000 = $1,012,000). (28/46)*1,012,000 = $616,000. That's the correct answer. How about $660,000? $990,000 / (10,000+25,000) = $28.28 per unit. Maybe they calculate cost per budgeted Beta unit ($550,000/25,000 = $22/unit) and multiply by actual units ($22*28,000 = $616,000). Still the right answer. OK, let's try this: calculate overhead per budgeted unit of Beta ($22/MH 1MH/unit = $22/unit) and then apply it to the budgeted total machine hours for Beta ($22/unit 25,000 MH = $550,000). No. How about applying the rate ($22/MH) to the total budgeted units (35,000)? No. Let's try this: Total budgeted OH for Beta was $550,000. Maybe they find the percentage increase in units (28k/25k = 1.12) and increase the budgeted OH by that? $550,000 1.12 = $616,000. Still correct. Let's make D based on an error in the rate. What if they used total units as the denominator? $990,000 / (10k+25k units) = $28.28/unit. Then $28.28 28,000 units = $791,940. How about using budgeted units of Beta in the rate? $990,000 / 25,000 units = $39.6/unit. $39.6 * 28,000 = $1,108,800. The existing distractors are plausible enough. B is a very strong distractor.
  5. If Phoenix discovered that $2,100 of the direct labor cost for Job 205 was actually indirect labor that should have been classified as manufacturing overhead, what is the corrected total manufacturing cost for Job 205?
    Answer: $34,650 Predetermined overhead rate = $960,000 ÷ $640,000 = 150% of direct labor cost. Corrected direct labor = $12,600 - $2,100 = $10,500. Applied overhead = $10,500 × 150% = $15,750. Total manufacturing cost = $8,400 (materials) + $10,500 (corrected labor) + $15,750 (overhead) = $34,650. Choice B ignores the correction. Choice C uses wrong overhead rate. Choice D represents a calculation error.
  6. A company uses a plantwide overhead rate based on direct labor hours. The accountant calculated a rate of $18.50 per direct labor hour for the upcoming year. Halfway through the year, management revises its estimates. Original estimated total overhead was $740,000, and original estimated hours were 40,000. The new annual estimates are $782,000 for total overhead and 42,000 for direct labor hours. The company does not change its predetermined overhead rate mid-year. If actual hours for the year total 41,000, what amount of overhead will be applied to production for the entire year?
    Answer: $758,500 The key principle tested here is that a predetermined overhead rate, once established, is typically used for the entire period, regardless of mid-year changes in estimates. The amount of overhead applied is based on this original rate and the actual activity level. 1. Identify the predetermined overhead rate (POHR): The rate is given as $18.50 per direct labor hour. (This can be verified with original estimates: $740,000 / 40,000 hours = $18.50/hr). 2. Identify the actual activity level: The actual hours for the year were 41,000. 3. Calculate total applied overhead: Applied OH = POHR × Actual Hours = $18.50/hr × 41,000 hours = $758,500. The revised estimates are irrelevant information designed to distract the test-taker. Distractor B calculates a new rate based on revised estimates ($782,000 / 42,000 = $18.62/hr) and applies it to actual hours ($18.62 41,000 = $763,420, let's make B based on a different error). What if they apply the new rate to the new estimated hours? $18.62 42,000 = $782,040. What if they apply the old rate to the new estimated hours? $18.50 * 42,000 = $777,000. This is a good distractor (B). Distractor C is the revised total overhead estimate. Distractor D is the original total overhead estimate.
  7. Assuming the company's practical capacity in machine hours does not change, what will be the plantwide overhead rate for 20X2?
    Answer: $17.60 per machine hour This problem requires calculating inputs for a future period based on changes from a prior period. 1. Calculate the practical capacity. The company operated at 50,000 MH, which was 80% of capacity. So, Practical Capacity = 50,000 MH / 0.80 = 62,500 MH. 2. Calculate the budgeted machine hours for 20X2. The company plans to operate at 90% of practical capacity. So, Budgeted MH for 20X2 = 62,500 MH × 0.90 = 56,250 MH. 3. Calculate the budgeted overhead for 20X2. Overhead is expected to increase by 10% from 20X1's budget of $900,000. So, Budgeted MOH for 20X2 = $900,000 × 1.10 = $990,000. 4. Calculate the POHR for 20X2: POHR = Budgeted MOH / Budgeted MH = $990,000 / 56,250 MH = $17.60 per MH. Distractor A is the rate for 20X1 ($900,000 / 50,000 MH = $18.00). Distractor C uses the new overhead but the old activity level ($990,000 / 50,000 MH = $19.80). Distractor D uses the new overhead but incorrectly calculates the new activity level or makes another error.
  8. What is the value of the total over- or underapplied overhead after correcting for the data entry error?
    Answer: $80,000 underapplied This multi-step problem requires correcting an error before performing the over/underapplied calculation. 1. Calculate the predetermined overhead rate (POHR): POHR = Budgeted MOH / Budgeted MH = $1,500,000 / 75,000 MH = $20 per MH. 2. Determine the correct actual machine hours: The recorded hours were 82,000. Job 4B was overstated by 5,000 - 3,000 = 2,000 hours. So, the corrected actual hours are 82,000 - 2,000 = 80,000 MH. 3. Calculate the total overhead applied using the corrected actual hours: Applied OH = POHR × Corrected Actual MH = $20/MH × 80,000 MH = $1,600,000. 4. Compare applied overhead to actual overhead: Actual MOH was $1,680,000. Applied MOH was $1,600,000. Since actual exceeds applied, overhead is underapplied by $80,000. Distractor A would be the result if the student did not correct the hours (Applied OH = $20 × 82,000 = $1,640,000; Underapplied = $1,680,000 - $1,640,000 = $40,000). Distractor B reverses the sign. Distractor C would occur if using the original actual overhead of $1,600,000.
  9. A large custom order (Job 892) will require 180 direct labor hours and 240 machine hours. If Riverside's management wants to minimize the overhead allocated to this job for pricing purposes, which allocation base should they choose and what will be the overhead allocation?
    Answer: Choose direct labor hours; overhead allocation of $3,240 When choosing between allocation bases for overhead, you need to calculate the overhead rate for each option and determine which produces the lower allocation for the specific job. First, calculate the overhead rates. Using direct labor hours: $1,440,00080,000 hours=$18 per DLH\frac{\$1,440,000}{80,000 \text{ hours}} = \$18 \text{ per DLH}. Using machine hours: $1,440,00060,000 hours=$24 per MH\frac{\$1,440,000}{60,000 \text{ hours}} = \$24 \text{ per MH}. Next, apply each rate to Job 892. With direct labor hours: 180 DLH×$18=$3,240180 \text{ DLH} \times \$18 = \$3,240. With machine hours: 240 MH×$24=$5,760240 \text{ MH} \times \$24 = \$5,760. Since management wants to minimize overhead allocation for pricing purposes, they should choose direct labor hours, resulting in $3,240 of allocated overhead. Looking at the wrong answers: Choice A incorrectly suggests machine hours with an impossible $3,600 allocation—this doesn't match either calculation. Choice B correctly calculates machine hours allocation ($5,760) but wrongly recommends the higher-cost option. Choice C uses the wrong allocation base (machine hours should yield $5,760, not $4,320) and recommends the higher-cost method. The key insight is that the allocation base requiring fewer "units" relative to the overhead pool will typically produce a higher rate per unit. Here, Job 892 is relatively machine-intensive (240 MH vs 180 DLH), making machine hours the costlier choice. Study tip: Always calculate both rates and apply them to the specific job before deciding. The "better" allocation base depends entirely on the job's characteristics relative to the company's overall resource usage patterns.
  10. A company estimates its manufacturing overhead will be $500,000. It is considering two possible plantwide allocation bases: 40,000 direct labor hours or 25,000 machine hours. The company has two products, Pro and Lite. Pro is labor-intensive (3 DLH, 1 MH per unit), while Lite is machine-intensive (1 DLH, 2 MH per unit). If the company produces 10,000 units of Pro and 5,000 units of Lite, how would the overhead cost per unit of Pro differ if machine hours were used as the base instead of direct labor hours?
    Answer: $17.50 lower per unit This multi-step problem requires calculating the overhead cost per unit under two different allocation bases and then finding the difference. First, verify the total hours: Pro (10k units 3 DLH) + Lite (5k units 1 DLH) = 30k + 5k = 35,000 DLH. Pro (10k units 1 MH) + Lite (5k units 2 MH) = 10k + 10k = 20,000 MH. The budgeted totals of 40k DLH and 25k MH represent capacity, not the planned production mix. The POHR must be based on the budgeted totals. 1. Calculate POHR using Direct Labor Hours: POHR_DLH = $500,000 / 40,000 DLH = $12.50 per DLH. 2. Calculate overhead cost per unit of Pro using DLH base: OH/unit = POHR_DLH × DLH per unit = $12.50/DLH × 3 DLH/unit = $37.50 per unit. 3. Calculate POHR using Machine Hours: POHR_MH = $500,000 / 25,000 MH = $20.00 per MH. 4. Calculate overhead cost per unit of Pro using MH base: OH/unit = POHR_MH × MH per unit = $20.00/MH × 1 MH/unit = $20.00 per unit. 5. Find the difference: Cost per unit (MH base) - Cost per unit (DLH base) = $20.00 - $37.50 = -$17.50. The cost is $17.50 lower per unit when using machine hours. Distractor A reverses the sign or makes a calculation error. Distractor C calculates the DLH rate ($12.50) but fails to complete the comparison correctly. Distractor D uses the MH rate ($20.00) but fails to compare it properly.
  11. Orion Manufacturing uses a plantwide overhead rate based on direct labor cost. For the current year, the rate was set at 180% of direct labor cost. The company's actual direct labor cost for the year was $400,000. If manufacturing overhead was underapplied by $30,000 for the year, what was the total actual manufacturing overhead cost incurred?
    Answer: $750,000 This question requires working backward using the relationship between actual overhead, applied overhead, and the underapplied amount. 1. Calculate the total overhead applied during the year: Applied OH = POHR × Actual Direct Labor Cost = 180% × $400,000 = $720,000. 2. Use the formula for underapplied overhead: Underapplied OH = Actual OH - Applied OH. 3. Rearrange the formula to solve for Actual OH: Actual OH = Applied OH + Underapplied OH. 4. Substitute the known values: Actual OH = $720,000 + $30,000 = $750,000. Distractor B results from incorrectly subtracting the underapplied amount from the applied overhead ($720,000 - $30,000). Distractor C is the amount of applied overhead, not actual overhead. Distractor D is a distractor that could come from adding something incorrectly, perhaps adding the underapplied amount to an incorrect base.
  12. Job 445 required 45 hours on the day shift and 30 hours on the night shift. If Northstar wants to calculate the total manufacturing cost for this job, and direct materials totaled $1,850, what is the applied manufacturing overhead for Job 445?
    Answer: $3,072 When you encounter overhead application problems with multiple labor rates, the key is calculating total direct labor cost first, then applying the predetermined overhead rate to that total. Start by finding the direct labor cost for each shift. Day shift: 45 hours × $24/hour = $1,080. Night shift: 30 hours × $28/hour = $840. Total direct labor cost = $1,080 + $840 = $1,920. Since Northstar uses a plantwide overhead rate of 160% of direct labor cost, you apply this rate to the total direct labor cost: $1,920 × 160% = $3,072. This is your applied manufacturing overhead. Looking at the wrong answers: Choice A ($2,880) appears to calculate overhead by multiplying total hours (75) by some average rate, which ignores the different wage rates between shifts. Choice C ($1,920) is actually the total direct labor cost itself, not the applied overhead – this represents forgetting to apply the 160% rate entirely. Choice D ($2,688) likely results from applying the overhead rate to only one shift's labor cost rather than the combined total. Remember that predetermined overhead rates are applied to cost drivers (in this case, direct labor cost), regardless of how many different rates comprise that driver. Always calculate your total cost driver amount first, then apply the overhead rate to that complete total. Don't get distracted by the complexity of multiple shifts or rates – the overhead application itself remains straightforward once you have the total direct labor cost.
  13. The journal entry to close the Manufacturing Overhead account will include a:
    Answer: Credit to Cost of Goods Sold for $75,000 This question combines understanding account balances with the corresponding journal entries. 1. Analyze the overhead account balance: The Manufacturing Overhead account has a credit balance of $75,000. In a normal costing system, actual overhead is debited to this account and applied overhead is credited. A credit balance means that credits (applied) exceeded debits (actual). Therefore, overhead was overapplied by $75,000. 2. Determine the effect of closing: Overapplied overhead means that the cost of products was overstated during the period. Closing this balance to Cost of Goods Sold (COGS) requires reducing the COGS balance. 3. Construct the journal entry: To reduce COGS, you must credit the COGS account. To close the credit balance in the Manufacturing Overhead account, you must debit it. The entry is: Debit: Manufacturing Overhead $75,000 Credit: Cost of Goods Sold $75,000 Therefore, the entry includes a credit to Cost of Goods Sold for $75,000. Distractor A describes the entry for underapplied overhead. Distractors C and D use incorrect accounts or amounts for this closing entry.
  14. What was the over- or underapplied overhead for Zenith Corp. for the year?
    Answer: $10,000 overapplied This is a multi-step problem that requires identifying relevant overhead costs, calculating the POHR, calculating applied overhead, and comparing it to total actual overhead. 1. Identify and sum the actual manufacturing overhead costs. Sales commissions and corporate office rent are period (non-manufacturing) costs and should be excluded. Actual MOH = $120,000 (Rent) + $180,000 (Indirect Labor) + $165,000 (Utilities) + $155,000 (Depreciation) = $620,000. 2. Calculate the predetermined overhead rate (POHR) using the estimated data: POHR = Estimated MOH / Estimated DLH = $600,000 / 20,000 DLH = $30 per DLH. 3. Calculate the total overhead applied during the year using the actual hours worked: Applied OH = POHR × Actual DLH = $30/DLH × 21,000 DLH = $630,000. 4. Compare applied vs. actual MOH: Applied OH ($630,000) - Actual MOH ($620,000) = $10,000. Since applied exceeds actual, overhead is overapplied by $10,000. Distractor A results from including all costs listed ($700,000 total - $630,000 applied = $70,000 underapplied). Distractors B and C represent other calculation errors.
  15. If TechCraft applies overhead using its predetermined rate and wants to determine the overhead variance for the first quarter, which of the following represents the correct applied overhead amount and variance classification?
    Answer: Applied overhead $292,500; overapplied by $7,500 Predetermined overhead rate = $1,260,000 ÷ 84,000 machine hours = $15 per machine hour. Applied overhead = 19,500 machine hours × $15 = $292,500. Since applied overhead ($292,500) exceeds actual overhead ($285,000), overhead is overapplied by $292,500 - $285,000 = $7,500. Choice B incorrectly classifies as underapplied. Choices C and D use an incorrect applied overhead calculation, possibly using a wrong rate.
  16. How much manufacturing overhead was applied to Job 101?
    Answer: $17,000 This problem requires calculating a predetermined overhead rate based on direct labor cost, then calculating the direct labor cost for the specific job, and finally applying the overhead. 1. Calculate the predetermined overhead rate (POHR): POHR = Estimated Total MOH / Estimated Direct Labor Cost = $765,000 / $450,000 = 170% of direct labor cost (or $1.70 per dollar of direct labor). 2. Calculate the direct labor cost for Job 101: Direct Labor Cost = Actual Hours × Labor Rate = 500 DLH × $20/DLH = $10,000. 3. Apply manufacturing overhead to Job 101: Applied OH = POHR × Actual Direct Labor Cost for Job = 170% × $10,000 = $17,000. Distractor A uses the direct materials cost ($1.70 $12,000 = $20,400). Distractor C incorrectly calculates the POHR based on hours (e.g., $765,000 / ($450,000/$20) = $34/hr, then applies it to 500 hours = $17,000. Wait, this gives the correct answer. Let's check that logic. Estimated hours = $450,000 / $20 = 22,500 hours. POHR per hour = $765,000 / 22,500 = $34/hr. Applied OH = $34 500 = $17,000. This is a case of a flawed question where a wrong method leads to the right answer. I must fix this. Let's change the labor rate for the job. Let's say the average estimated rate is $18/hr ($450,000/25,000 hrs), but for this specific job, the rate is $20/hr. This makes the distinction between a cost-based and hour-based rate critical. Revised Scenario: Estimated DL cost $450,000, based on 25,000 estimated hours. Job 101 used 500 hours at $20/hr. 1. POHR (cost basis) = $765,000 / $450,000 = 170% of DL cost. 2. Job 101 DL Cost = 500 hrs * $20/hr = $10,000. 3. Applied OH = 1.70 * $10,000 = $17,000. (Correct Answer) Distractor logic: - POHR (hour basis) = $765,000 / 25,000 hrs = $30.60 per hour. - Applied OH (hour basis) = $30.60 * 500 hrs = $15,300. This can be a distractor. - Student uses DM cost: 1.70 * $12,000 = $20,400. (Distractor A) - Student miscalculates rate: $450,000 / $765,000 = 0.588. 0.588 * $10,000 = $5,882. Not a great distractor. - Student uses the rate per hour ($30.60) and multiplies by the job's DL cost ($10,000). $30.60 * 10,000 is huge. No. - How to get C ($8,500) or D ($34,000)? Maybe $17,000 / 2 or $17,000 * 2. Plausible if a student halves or doubles something. Let's make the numbers cleaner. Estimated MOH = $800,000. Estimated DL Cost = $500,000. POHR = 160%. Job DL cost = $10,000. Applied OH = $16,000. This is cleaner. Let's use this. Revised question: MOH=$800k, DL Cost=$500k. Job 101 DM=$12k, DL=500 hrs @ $20/hr. What is applied OH? 1. POHR = $800k / $500k = 160% of DL Cost. 2. Job 101 DL Cost = 500 * $20 = $10,000. 3. Applied OH = 1.60 * $10,000 = $16,000. Now let's create distractors for $16,000. A) $19,200 (160% of DM cost $12,000). C) $8,000 (applies the rate to the hours, 1.60 * 5000 = 8000, or maybe just halves the correct answer). D) $10,000 (confuses applied OH with DL cost). This looks good. The correct answer will be $16,000. I'll relabel the choices. So B will be $16,000. Original Question was better, the flaw was in my distractor analysis. POHR per hour calculation: Estimated average rate is needed. Let's assume the $20/hr rate is standard. Estimated hours = $450,000 / $20 = 22,500 hours. POHR per hour = $765,000 / 22,500 = $34/hr. Applied OH = $34/hr * 500 hrs = $17,000. This is the problem. The correct answer can be reached two ways. The question must be written to prevent this. The key is to make the average plant-wide labor rate different from the job-specific labor rate. Let's say the plant-wide average is $18/hr. Final Revised Question: Estimated MOH $765,000. Estimated DL cost $450,000 (based on an estimated plant-wide average of $18/hr). Job 101 used 500 hours with labor paid at $20/hr. 1. POHR (based on DL cost) = $765,000 / $450,000 = 170% of DL Cost. (This is the stated base). 2. Job 101 DL Cost = 500 hrs * $20/hr = $10,000. 3. Applied OH = 1.70 * $10,000 = $17,000. (Correct Answer B) Distractor based on hours: 1. Estimated DL hours = $450,000 / $18/hr = 25,000 hours. 2. POHR (based on hours) = $765,000 / 25,000 hours = $30.60 per hour. 3. Applied OH if using hours = $30.60 * 500 hrs = $15,300. This is a great distractor. Let's make it an answer choice. So, B=$17,000. C=$15,300. A=$20,400 (using DM). D=$10,000 (confusing with DL cost). Perfect. I will revert to the original numbers and logic, which I have now fortified. The key is that the stem says the base is DL cost, so the DL hour calculation is a trap.
  17. Bristol Company budgeted its plantwide overhead at $840,000 for the year and chose machine hours as the allocation base, with an estimated 60,000 machine hours. By year-end, actual overhead was $850,000 and actual machine hours were 58,000. If Bristol Company had used an actual plantwide overhead rate (calculated at year-end) instead of a predetermined rate, the overhead applied to a job that required 100 machine hours would have been:
    Answer: approximately $1,466 This question tests the distinction between a predetermined (normal costing) overhead rate and an actual overhead rate. 1. An actual overhead rate is calculated using actual data at the end of the period: Actual Rate = Actual Total MOH / Actual Activity Level. 2. Calculate the actual rate for Bristol Company: Actual Rate = $850,000 / 58,000 MH = $14.655... per MH. 3. Apply this actual rate to the job: Applied OH = Actual Rate × Hours for Job = $14.655... × 100 MH ≈ $1,466. Distractor B ($1,400) is the overhead that would be applied using the predetermined rate (Budgeted MOH / Budgeted MH = $840,000 / 60,000 MH = $14.00 per MH; $14.00 × 100 MH = $1,400). This is the most common error. Distractor C ($1,441) results from dividing actual overhead by budgeted hours ($850,000 / 60,000 MH = $14.166...) and then multiplying by 100 MH. Distractor D ($1,420) results from dividing budgeted overhead by actual hours ($840,000 / 58,000 MH = $14.48...) and then multiplying by 100 MH.
  18. How many actual direct labor hours were worked during the year?
    Answer: 88,000 This is a multi-step problem that requires working backward from the final overhead account balance. 1. Determine the total applied overhead. A credit balance in the MOH account means overhead was overapplied. The relationship is: Overapplied Amount = Applied OH - Actual OH. We can rearrange this to find Applied OH: Applied OH = Actual OH + Overapplied Amount (Credit Balance). 2. Calculate Applied OH: Applied OH = $2,150,000 + $50,000 = $2,200,000. 3. Calculate the predetermined overhead rate (POHR): POHR = Budgeted MOH / Budgeted DLH = $2,000,000 / 80,000 DLH = $25 per DLH. 4. Calculate the actual direct labor hours worked. The formula is Applied OH = POHR × Actual DLH. Rearranging gives: Actual DLH = Applied OH / POHR. 5. Calculate Actual DLH: Actual DLH = $2,200,000 / $25 per DLH = 88,000 hours. Distractor B ($86,000) results from dividing actual overhead by the POHR ($2,150,000 / $25 = 86,000). Distractor C ($84,000) results from incorrectly treating the credit balance as underapplied (Applied OH = $2,150,000 - $50,000 = $2,100,000; $2,100,000 / $25 = 84,000). Distractor D is the budgeted hour amount.
  19. What is Finch Co.'s predetermined plantwide overhead rate?
    Answer: $9.50 per machine hour To find the predetermined overhead rate (POHR), you must first calculate the total estimated manufacturing overhead at the budgeted activity level. 1. Calculate total estimated MOH: Total MOH = Fixed Component + (Variable Rate × Budgeted Activity) = $360,000 + ($5.00/MH × 80,000 MH) = $360,000 + $400,000 = $760,000. 2. Calculate the POHR: POHR = Total Estimated MOH / Budgeted Activity = $760,000 / 80,000 MH = $9.50 per machine hour. Distractor A incorrectly uses only the variable component of the overhead. Distractor C incorrectly uses only the fixed component, averaged over the activity level ($360,000 / 80,000 MH = $4.50 per MH). Distractor D is a plausible but incorrect calculation, perhaps dividing one of the cost components by an incorrect activity level or summing rates incorrectly.
  20. How much overhead was applied to Work-in-Process during November?
    Answer: $125,000 The question asks for the amount of overhead applied during the month, which is based on the predetermined rate and the actual activity for that month. 1. Calculate the predetermined overhead rate (POHR) for the year: POHR = Budgeted Total MOH / Budgeted Total MH = $1,250,000 / 50,000 MH = $25 per MH. 2. Determine the total actual activity for November: Total MH = Job A MH + Job B MH = 2,000 MH + 3,000 MH = 5,000 MH. 3. Calculate the overhead applied in November: Applied OH = POHR × Actual MH in November = $25/MH × 5,000 MH = $125,000. Distractor B is the actual overhead for November, not the applied overhead. This is a classic confusion tested. Distractor C represents the budgeted monthly overhead ($1,250,000 / 12 months = $104,167). Distractor D results from an incorrect POHR calculation, perhaps by dividing by the wrong number.

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