Week 3 Accounting Chapter 3 Applying Excel Data Allocation

Wk 3 Acctchapter 3 Applying Exceldataallocation Basemachine Hoursesti

WK 3 Acct Chapter 3: Applying Excel Data Allocation base Machine-hours Estimated manufacturing overhead cost $300,000 Estimated total amount of the allocation base 75,000 machine-hours Actual manufacturing overhead cost $290,000 Actual total amount of the allocation base 68,000 machine-hours Enter a formula into each of the cells marked with a ? below Computation of the predetermined overhead rate Estimated manufacturing overhead cost ? Estimated total amount of the allocation base ? machine-hours Predetermined overhead rate ? per machine-hour Computation of underapplied or overapplied manufacturing overhead Actual manufacturing overhead cost ? Manufacturing overhead cost applied to Work in Process during the year: Predetermined overhead rate ? per machine-hour Actual total amount of the allocation base ? machine-hours Manufacturing overhead applied ? Underapplied (overapplied) manufacturing overhead ?

Paper For Above instruction

In managerial accounting, understanding how to allocate manufacturing overhead efficiently and accurately is essential for determining product costs and assessing company profitability. The use of predetermined overhead rates is a standard method that helps allocate overhead in a systematic way. This paper explores the calculation process for applying overhead using estimated costs and actual activity levels, exemplified through a hypothetical scenario involving machine hours. It also emphasizes the importance of analyzing underapplied or overapplied overhead to maintain cost control and financial accuracy.

The first step involves calculating the predetermined overhead rate, which requires dividing estimated manufacturing overhead costs by estimated total machine-hours. For the given data, the estimated overhead cost is $300,000, and the estimated machine-hours are 75,000. The formula is:

Predetermined Overhead Rate = Estimated Manufacturing Overhead Cost / Estimated Machine-Hours

which results in:

$300,000 / 75,000 hours = $4.00 per machine-hour

This rate indicates that for every machine-hour utilized, $4.00 of overhead costs are allocated. This rate is then used to compute the overhead applied during the period based on actual machine-hours incurred. In this scenario, the actual machine-hours are 68,000, as opposed to the estimated 75,000, which impacts the total overhead applied.

The total manufacturing overhead applied to work in process is calculated as:

Overhead Applied = Predetermined Overhead Rate x Actual Machine-Hours

Applying the actual machine-hours:

$4.00 x 68,000 hours = $272,000

This amount reflects the overhead allocated based on actual machine use.

Next, analyzing the difference between actual overhead incurred ($290,000) and overhead applied ($272,000) highlights whether overhead was underapplied or overapplied:

Underapplied or Overapplied Overhead = Actual Overhead - Overhead Applied

$290,000 - $272,000 = $18,000 underapplied

This indicates that the company underapplied overhead by $18,000, meaning actual costs exceeded allocated overhead, which requires adjustment in financial statements or cost analysis.

Effective management involves using these calculations to refine estimating techniques, improve efficiency, and control costs. Regular analysis of under or overapplied overhead ensures accurate product costing and helps identify areas where operational adjustments are necessary.

In conclusion, the allocation of manufacturing overhead using predetermined rates is central to managerial accounting. Properly calculating rates based on estimates and comparing applied overhead with actual costs allows companies to maintain accuracy in financial reporting and operational decision-making. Continuous evaluation of these metrics supports strategic planning and cost management efforts, ultimately contributing to the company's profitability and competitive advantage.

References

  • Drury, C. (2018). Management and Cost Accounting. Cengage Learning.
  • Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2021). Managerial Accounting. McGraw-Hill Education.
  • Horngren, C. T., Datar, S. M., & Rajan, M. (2019). Cost Accounting: A Managerial Emphasis. Pearson.
  • Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2019). Managerial Accounting. Wiley.
  • Hilton, R. W., Platt, D. E., & Sarin, R. K. (2018). Managerial Accounting: Creating Value in a Dynamic Business Environment. McGraw-Hill Education.
  • Block, S. B., Heller, R., & Richard, J. K. (2020). Fundamentals of Financial Management. McGraw-Hill Education.
  • Burns, A., & Scapens, R. (2016). Researching management accounting change: Evidence from the United Kingdom. Management Accounting Research.
  • Kaplan, R. S., & Anderson, S. R. (2004). Time-driven Activity-Based Costing. Harvard Business Review.
  • Chandler, A. D. (2017). Strategy and Structure: Chapters in the History of the American Enterprise. MIT Press.
  • Kaplan, R. S., & Norton, D. P. (2001). The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment. Harvard Business School Press.

Related Assignments