Question

At the beginning of the year, Smith Company budgeted overhead of $129,600 as well as 13,500 direct labor hours. During the year, Job K456 was completed with the following information: direct materials cost, $2,750; direct labor cost, $5,355. The average wage for Smith Company employees is $17 per hour.

By the end of the year, 18,100 direct labor hours had actually been worked, and Smith incurred the following actual overhead costs for the year:

Equipment lease	$ 6,800
Depreciation on building	19,340
Indirect labor	90,400
Utilities	14,560
Other overhead	41,400

	Required:
1.	Calculate the overhead rate for the year.
2.	Calculate the total cost of Job K456.
3.	Prepare the Dec. 31 journal entries to record actual overhead and to apply overhead to production for the year.
4.	Is overhead overapplied or underapplied? By how much?
5.	Assuming that the normal cost of goods sold for the year is $635,600, what is the adjusted cost of goods sold?

Answer 1

1) Overhead rate = estimated overhead/estimated hour = 129600/13500 = 9.60 per hour

2) Total cost of Job K456

Direct material	2750
Direct labor	5355
Overhead (5355/17*9.60)	3024
Total cost of Job	11129

3) Journal entry

Date	account and explanation	Debit	Credit
	Manufacturing overhead	172500
	Lease payable		6800
	Accumulated depreciation-Building		19340
	Wages payable		90400
	Utilities payable		14560
	Account payable		41400
	(To record actual overhead)
	Work in process (18100*9.6)	173760
	Manufacturing overhead		173760
	(To record applied overhead)

4) Over applied overhead = 173760-172500 = 1260

5) Adjusted cost of goods sold = 635600-1260 = 634340