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PA2-7 (Algo) Selecting an Allocation Base and AnalyzingManufacturing Overhead [LO 2-3, 2-5]

Amberjack Company is trying to decide on an allocation base touse to assign manufacturing overhead to jobs. The company hasalways used direct labor hours to assign manufacturing overhead toproducts, but it is trying to decide whether it should use adifferent allocation base such as direct labor dollars or machinehours.

Actual and estimated data for manufacturing overhead, directlabor cost, direct labor hours, and machine hours for the mostrecent fiscal year are summarized here:

	Estimated Value				Actual Value
Manufacturing overhead cost	$	601,000			$	662,000
Direct labor cost	$	403,000			$	457,000
Direct labor hours		17,200	hours			18,700	hours
Machine hours		8,200	hours			9,200	hours

Required:

1. Based on the company’s current allocationbase (direct labor hours), compute the following:

a. Predetermined overhead rate. (Roundyour answer to 2 decimal places.)

b. Applied manufacturing overhead.(Round your intermediate calculations to 2 decimal placesand final answer to the nearest whole dollar amount.)

c. Over- or underapplied manufacturingoverhead. (Round your intermediate calculations to 2decimal places and final answer to the nearest whole dollaramount.)

2. If the company had used direct labor dollars(instead of direct labor hours) as its allocation base, compute thefollowing:

a. Predetermined overhead rate. (Roundyour answer to 2 decimal places, i.e. 3.63%)

b. Applied manufacturing overhead.(Round your intermediate calculations to 2 decimal placesand final answer to the nearest whole dollar amount.)

c. Over- or underapplied manufacturingoverhead. (Round your intermediate calculations to 2decimal places and final answer to the nearest whole dollaramount.)

3. If the company had used machine hours(instead of direct labor hours) as its allocation base, compute thefollowing:

a. Predetermined overhead rate. (Roundyour answer to 2 decimal places.)

b. Applied manufacturing overhead.(Round your intermediate calculations to 2 decimal placesand final answer to the nearest whole dollar amount.)

c. Over- or underapplied manufacturingoverhead. (Round your intermediate calculations to 2decimal places and final answer to the nearest whole dollaramount.)

4. Based on last year’s data alone, whichallocation base would have provided the most accurate measure forapplying manufacturing overhead costs to production?