Question

Solve this question with explaination.

Chapter 3 - Job Cost Transactions Your vase and pot company has the following transactions during the month Record the journal entries. Purchased $18,000 of materials for production on account. Requisitioned $12,000 of direct materials and $3,500 of indirect materials for production. Accrued wages for production line personnel of $21,000, for production managers of $26,000, for factory maintence personnel of $13,000, and for sales personnel of $17,000. Paid $10,500 in property taxes, 75% of which is factory related. Applied manufacturing overhead based on production line wages at the rate of $3 per dollar of wages. Compute under/overapplied overhead.

Answer 1

Solution:

Calculation of under or over applied overhead

Manufacturing overheads are applied on estimation basis.

The actual manufacturing overheads may differ from applied overheads.

The actual manufacturing overheads costs are known at the end of the period.

So, the different between actual manufacturing overhead costs and applied manufacturing overhead costs is called OVER OR UNDER APPLIED OVERHEAD.

If Applied Factory Overheads are less than the actual manufacturing overheads, the overheads are called under applied.

If Applied Factory Overheads are greater than the actual manufacturing overheads, the overheads are called over applied.

So we need to find out actual manufacturing overheads incurred by the company during the period and applied overheads.

Actual Manufacturing Overheads

	$$
Indirect materials for production	$3,500
Salary of Production Manager	$26,000
Factory Maintenance Personnel Wages	$13,000
Property Taxes - Factory ($10,500*75%)	$7,875
Total Actual Manufacturing Overheads	$50,375

Applied Manufacturing Overheads

Applied Manufacturing Overheads = Production line wages * $3 per dollar wages

= $21,000 * $3

= $63,000

Here, applied manufacturing overheads are higher than actual manufacturing overheads, it means the Overheads are OVER APPLIED.

OVER Applied Manufacturing Overhead = $63,000 - $50,375 = $12,625

OVER APPLIED Manufacturing Overhead = $12,625

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