Question

Problem 15-4A Overhead allocation and adjustment using a predetermined overhead rate LO P3, P4 In December 2016, Learer Company's manager estimated next year's total direct labor cost assuming 25 persons working an average of 3,000 hours each at an average wage rate of $30 per hour. The manager also estimated the following manufacturing overhead costs for 2017 eBook Indirect labor Factory Supervision Rent on factory building Factory utilities Factory insurance expired Depreciation Factory equipment Repairs expense Factory equipment Factory supplies used Miscellaneous production costs Total estimated overhead costs $ 339,200 159.000 160.000 108.000 38.000 486.000 80.000 89.00 55,000 $1.575.000 At the end of 2017, records show the company incurred $1,863,000 of actual overhead costs. It completed and sold five jobs with the following direct labor costs: Job 201, 5624,000: Job 202, 5583,000: Job 203, 5318,000: Job 204, $736,000, and Job 205. $334.000 In addition, Job 206 is in process at the end of 2017 and had been charged $37,000 for direct labor. No jobs were in process at the end of 2016. The company's predetermined overhead rate is based on direct labor cost.

Answer 1

Solution 1a:

Estimated Direct labor cost = 25*3000*$30 = $2,250,000

Estimated Overhead cost / Estimated Direct labor cost = Predetermined overhead rate

$1575000 / $2250000 = 70%

Solution 1b:

Computation of Overhead cost Applied to Jobs
Job no.	Direct Labor	Overhead Cost applied (70%)
201	$6,24,000	$4,36,800
202	$5,83,000	$4,08,100
203	$3,18,000	$2,22,600
204	$7,36,000	$5,15,200
205	$3,34,000	$2,33,800
206	$37,000	$25,900
Total	$26,32,000	$18,42,400

Solution 1c:

Factory Overhead
Actual Overhead	$18,63,000	Applied	$18,42,400
Balance (Under-applied)	$20,600

Solution 2:

Journal Entries
Particulars	Debit	Credit
Cost of Goods sold Dr	$20,600
To Factory Overhead		$20,600
(To allocate under applied overhead)