Gitano Products operates a job-order costing system and applies overhead cost to jobs on the basis of direct materials used in production (not on the basis of raw materials purchased). All materials are classified as direct materials. In computing a predetermined overhead rate at the beginning of the year, the company's estimates were: manufacturing overhead cost, 800,000 ; and direct materials to be used in production, 500,000 . The company has provided the following data in the form of an Excel worksheet:
(a) (i). Compute the predetermined overhead rate for the year. (ii). Compute the amount of underapplied or overapplied overhead for the year.

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rafikiedu09 rafikiedu09 · Answer 1 · 2022-08-29T10:36:12+02:00

(a) Predetermined overhead rate = Estimated total manufacturing overhead cost/ Estimated total amount of the allocation base

=$8,00,000/$5,00,000 = 160%

(b) Computation of the amount of underapplied or overapplied overhead for the year has been attached as an image with the solution.

What is Predetermined overhead rate?

An allocation rate called a predefined overhead rate is used to apply a projected manufacturing overhead cost to either products or job orders.
At the beginning of an accounting period, this rate is often determined by dividing the cost of manufacturing overhead by the activity driver, also known as the activity base or allocation base.
Machine hours, direct materials, or direct labour hours are typical illustrations of activity drivers.

(a) Predetermined overhead rate = Estimated total manufacturing overhead cost/ Estimated total amount of the allocation base

=$8,00,000/$5,00,000 = 160%

(b) Computation of the amount of underapplied or overapplied overhead for the year has been attached as an image with the solution

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