Question

Problem 4-44 Application of Overhead [LO 4-3, 4-4, 4-5]

The following information applies to the O’Donnell Company for March ­production. There are only two jobs (X and Y) in production in March.

1. Purchased direct materials and indirect materials with the following summary of receiving reports:

Material A	$	26,000
Material B		17,000
Indirect materials		8,000
Total	$	51,000

2. Issued direct materials and indirect materials with this summary of requisitions:

	Job X				Job Y				Total
Material A	$	10,000			$	20,000			$	30,000
Material B		5,000				10,000				15,000
Subtotal	$	15,000			$	30,000			$	45,000
Indirect materials										44,000
Total									$	89,000

3. Factory labor incurred is summarized by these time tickets:

Job X	$	26,000
Job Y		17,000
Indirect labor		33,000
Total	$	76,000

4. Factory utilities, factory depreciation, and factory insurance incurred is summarized as follows:

Utilities	$	5,000
Depreciation		22,000
Insurance		4,500
Total	$	31,500

5. Factory overhead costs were applied to jobs at the predetermined rate of $56.00 per machine hour. Job X incurred 1,100 machine hours; Job Y used 800 machine hours.
6. Job X was completed; Job Y was still in process at the end of March.

The company closed the overapplied or underapplied overhead to the Cost of Goods Sold account at the end of March.

Required:

1. Calculate the total manufacturing cost for Job X and Job Y for March.

2. Calculate the amount of overapplied or underapplied overhead and state whether the Cost of Goods Sold account will be increased or decreased by the adjustment.

Answer 1

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Requirement 1
		Job X	Job Y	Total
Direct Material used:
-Material A		$ 10,000	$ 20,000	$ 30,000
-Material B		$    5,000	$ 10,000	$ 15,000
Direct Labor		$ 26,000	$ 17,000	$ 43,000
Manufacturing Overheads: (applied)
1100 Machine Hours*56		$ 61,600	$ 44,800	$106,400
800 Machine Hours *$56
Manufacturing Cost for March		$102,600	$ 91,800	$194,400
Requirement 2
Actual Manufacturing overhead:
Indirect Material		$ 44,000
Indirect Labor		$ 33,000
Utilities		$    5,000
Depreciation		$ 22,000
Insurance		$    4,500
Actual Manufacutring Overhead		$108,500
Applied Overhead		$106,400
Underapplied overheads		$    2,100
Since overheads are underapplied, COGS will increase by this adjustment