1) The fixed and variable cost components are given.

The cost
formula can be expressed as:
Y = 1,275,000 + 3.00X

At the level of 85,000 hours, the total manufacturing OH cost

may be calculated as:
Y = 1,275,000 + 3.00(85,000)
= 1,275,000 + 255,000
= 1,530,000

The predetermined OH rate can now be calculated as

manufacturing OH / number of hours:
= 1,530,000 / 85,000hrs
= $18 / hr

2) In order to determine if manufacturing OH is over or

underapplied, FIRST calculate manufacturing overhead applied.
The formula for manufacturing OH applied is:
= actual hours X predetermined OH rate

= 60,000 X 18
= 1,080,000

Subtract the manufacturing OH incurred from manufacturing OH

applied. If there is excess, manufacturing OH was overapplied. If
there is a negative, manufacturing OH was underapplied.
Manufacturing OH applied: 1,080,000
Manufacturing OH incurred: 1,350,000
= 1,080,000 - 1,350,000
= (270,000) manufacturing OH underapplied

3) Unadjusted cost of goods sold = 2,800,000

Underapplied OH cost = 270,000
Adjusted cost of goods sold = 3,070,000

Cost of goods sold 270,000

Manufacturing Overhead 270,000
 4) Overhead applied to work in process inventory, December 31 $ 43,200 4.0%
Overhead applied in finished goods inventory, December 31 280,800 26.0%
Overhead applied in cost of goods sold, December 31 756,000 70.0
Total overhead applied $1,079,200 100.0%

Work in process 270,000*4%=10,800

Finished Goods 270,000*26%=70,200
Cost of goods sold 270,000*70%=189,000
Manufacturing overhead 270,000

5)