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Applying manufacturing overhead

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Wize University Managerial Accounting Textbook > Job-Order Costing

Over- or Under-Applying Manufacturing Overhead

3 Activities

Build Your Car (BYC) Incorporated uses job order costing to account for its inventory.
The production manager has asked you to calculate the total inventory cost for each of
the following jobs, based on her estimates:


The production manager also mentions that manufacturing overhead seems to be driven
by direct labour hours. She also mentioned that there were 10,000 direct labour hours
budgeted in the year, and $400,000 in budgeted manufacturing overhead. Then, you look
at the draft financial statements for the year and notice the following in the notes:
December 31, 2017 December 31, 2016
Raw Materials $ 50,000 $ 40,000
Work in Process ? $ 30,000
Finished Goods $ 40,000 $ 60,000

During the year, BYC made $105,000 in purchases and had a Cost of Goods Manufactured of $145,000.

If there were actually 12,000 direct labour hours during the year, and actual manufacturing overhead costs were $500,000, how much was manufacturing overhead over/under-allocated by?
More Over- or Under-Applying Manufacturing Overhead Questions:
Applying manufacturing overhead
BYC Manufacturing Company produces many different items for construction companies. Information as at December 31, 2017 (the fiscal year end) is as follows:
Additional Information Produced:
1. Cost of Goods Sold during the year equaled $875,000. Cost of Goods Manufactured during the year was $400,000.