Bonita Company uses a job order cost system in each of its three manufacturing departments. Manufacturing overhead is applied to jobs on the basis of direct labor cost in Department D, direct labor hours in Department E, and machine hours in Department K. In establishing the predetermined overhead rates for 2020, the following estimates were made for the year.

Department
D E K
Manufacturing overhead $990,000 $1,750,000 $1,080,000
Direct labor costs $1,237,500 $1,875,000 $675,000
Direct labor hours 150,000 125,000 60,000
Machine hours 600,000 750,000 120,000

During January, the job cost sheets showed the following costs and production data.

Department
D E K

Direct materials used $140,000 $126,000 $78,000
Direct labor costs $120,000 $110,000 $37,500
Manufacturing overhead incurred $99,000 $124,000 $79,000
Direct labor hours 8,000 11,000 3,500
Machine hours 34,000 45,000 10,400

Required:
a. Compute the predetermined overhead rate for each department.
b. Compute the total manufacturing costs assigned to jobs in January in each department.
c. Compute the under- or overapplied overhead for each department at January 31.

a.Department D = $0.80 per direct labor cost, Department E =  $14 per direct labor hour, Department K = $9 per machine hour.

b.Department D = $96,000, Department E = $154,000, Department K = $93,600

c.Department D = $ 3,000 Under-applied, Department E = $30,000 Over-applied, Department K = $14,600 Over-applied

Explanation:

Predetermined Overhead Rate is used to apportion Factory Overheads to Jobs or Products.

Predetermined Overhead Rate = Budgeted Overheads / Budgeted Activity

Department D = $990,000 / $1,237,500

                        = $0.80 per direct labor cost

Department E = $1,750,000 / 125,000

                        = $14 per direct labor hour

Department K = $1,080,000 / 120,000

                        = $9 per machine hour

Overheads Assigned to Jobs = Predetermined Overhead Rate × Actual Activity.

Department D = $0.80 × $120,000

                        = $96,000

Department E = $14 × 11,000

                        = $154,000

Department K = $9 × 10,400

                       = $93,600

If, Actual Overheads > Assigned Overheads = Under-applied

If, Actual Overheads < Assigned Overheads = Over-applied

Department D = $ 99,000 -  $96,000

                        = $ 3,000 Under-applied

Department E =  $154,000 - $124,000

                        = $30,000 Over-applied

Department K  = $93,600 - $79,000

                        = $14,600 Over-applied

answer; comparing the additional benefits and costs;

answer decisions made by individual households and firms;