Overhead Exercises

1. Sure Co. has accumulated the following data over a six-month period:

Indirect Labor Indirect Labor

Hours Cost
January 500 P 9,500
February 400 9,000
March 600 10,000
April 800 12,000
May 700 11,000
June 650 10,500

Determine the formula that could be used to determine Sure’s indirect labor cost at various levels
of production using the high-low method.

2. The controller has asked you to examine different distribution methods for applying factory
overhead to the various production orders that are processed during a year.
The following information was taken from the annual budget:

Direct labor hours 84,000

Machine hours 120,000

Manufacturing costs:
Direct labor 525,000
Direct materials 180,000
Indirect labor 75,000
Electric power 48,000
Payroll taxes 12,600
Machine maintenance and repair 9,200
Factory supplies 16,000
Factory heat and light 14,000
Depreciation, taxes, and insurance:
Factory buildings 135,000
Machinery 320,200
P1,335,000

Actual results for the year follow:

Direct labor hours 85,000
Machine hours 110,000

Manufacturing costs:
Direct labor P 540,000
Direct material 200,000
Factory overhead 625,000
P1,365,000

a. Determine the following factory overhead application rates under each of the following
 methods:
(1) Direct labor cost
(2) Direct labor hours
(3) Machine hours

b. Determine the under- or overapplied factory overhead under each of the following
methods:
(1) Direct labor cost
(2) Direct labor hours
(3) Machine hours