Marian Manufacturing (2M) applies manufacturing overhead to jobs based on direct labor costs. For Year 2, 2M estimates its manufacturing overhead to be $425,620 and its direct labor costs to be $818,500. 2M worked on three jobs for the year. Job 2M-1, which was sold during Year 2, had actual direct labor costs of $748,000. Job 2M-2, which was completed but not sold at the end of the year, had actual direct labor costs of $503,200. Job 2M-3, which is still in work-in-process inventory, had actual direct labor costs of $108,800. Actual manufacturing overhead for Year 2 was $742,800.

Required:
How much overhead was applied to each job in Year 2?
What was the over- or underapplied manufacturing overhead for Year 2?

To solve the problem, we need to calculate the following:

1. **Overhead application rate (predetermined overhead rate) for Year 2**.
2. **Overhead applied to each job based on the actual direct labor costs**.
3. **Total overhead applied** for all jobs during the year.
4. **Over- or underapplied manufacturing overhead** by comparing actual overhead incurred with the total applied overhead.

### Step 1: Calculate the predetermined overhead rate

The **predetermined overhead rate** is calculated as:

\[
\text{Predetermined Overhead Rate} = \frac{\text{Estimated Manufacturing Overhead}}{\text{Estimated Direct Labor Costs}}
\]

Given:
- Estimated manufacturing overhead = \$425,620
- Estimated direct labor costs = \$818,500

\[
\text{Predetermined Overhead Rate} = \frac{425,620}{818,500} = 0.52 \text{ or } 52\%
\]

This means that for every dollar of direct labor cost, 52% will be applied as manufacturing overhead.

### Step 2: Calculate the overhead applied to each job

Now, we apply this rate to the actual direct labor costs for each job.

- **Job 2M-1 (sold during Year 2)**: Direct labor cost = \$748,000
  \[
  \text{Overhead Applied to Job 2M-1} = 748,000 \times 0.52 = 389,760
  \]

- **Job 2M-2 (completed but not sold)**: Direct labor cost = \$503,200
  \[
  \text{Overhead Applied to Job 2M-2} = 503,200 \times 0.52 = 261,664
  \]

- **Job 2M-3 (still in work-in-process inventory)**: Direct labor cost = \$108,800
  \[
  \text{Overhead Applied to Job 2M-3} = 108,800 \times 0.52 = 56,576
  \]

### Step 3: Calculate the total overhead applied

The total overhead applied to all jobs is the sum of the overhead applied to each job:

\[
\text{Total Overhead Applied} = 389,760 + 261,664 + 56,576 = 707,200
\]

### Step 4: Determine the over- or underapplied overhead

Now, we compare the **total applied overhead** with the **actual overhead** incurred for Year 2.

- Actual manufacturing overhead = \$742,800
- Total applied overhead = \$707,200

The difference between the actual overhead and the applied overhead is:

\[
\text{Over- or Underapplied Overhead} = 742,800 - 707,200 = 35,600 \text{ (underapplied)}
\]

Since the actual overhead is greater than the applied overhead, the overhead is **underapplied** by \$35,600.

### Summary:

1. **Overhead applied to each job**:
   - Job 2M-1: \$389,760
   - Job 2M-2: \$261,664
   - Job 2M-3: \$56,576
2. **Total overhead applied**: \$707,200
3. **Underapplied overhead**: \$35,600

Would you like further details or clarifications?

Here are 5 follow-up questions to deepen your understanding:
1. How does over- or underapplied overhead affect the financial statements?
2. What are the reasons that can lead to overhead being over- or underapplied?
3. How is underapplied overhead typically accounted for at year-end?
4. What other allocation bases can be used besides direct labor costs?
5. How would changes in direct labor cost estimates affect the predetermined overhead rate?

**Tip**: Keeping track of overhead variances can help improve the accuracy of future budgeting and cost allocation methods.

Marian Manufacturing (2M) applies manufacturing overhead to jobs based on direct labor costs. For Year 2, 2M estimates its manufacturing overhead to be $425,620 and its direct labor costs to be $818,500. 2M worked on three jobs for the year. Job 2M-1, which was sold during Year 2, had actual direct labor costs of $748,000. Job 2M-2, which was completed but not sold at the end of the year, had actual direct labor costs of $503,200. Job 2M-3, which is still in work-in-process inventory, had actual direct labor costs of $108,800. Actual manufacturing overhead for Year 2 was $742,800.

Required: How much overhead was applied to each job in Year 2? What was the over- or underapplied manufacturing overhead for Year 2?

Learn how to calculate overhead applied to jobs at Marian Manufacturing using a predetermined overhead rate. This problem involves applying the rate to direct labor costs for each job, determining total applied overhead, and analyzing underapplied overhead for Year 2. Includes detailed step-by-step calculations for accounting students.

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