Question

The Night Ranger Company uses normal job-order costing with a predetermined overhead rate. The company had $7,000 in Materials Control at the beginning of 2019. The company includes BOTH direct and indirect materials in the Materials Control account. At the beginning of 2019, the company had two jobs in Work in Process. These were Job 20, which had $12,000 of product costs charged to the job last year (2018), and Job 30, which had $4,000 of product cost charged to the job last year. The company also had one job in Finished Goods at the beginning of 2019. This was Job 5, which consisted of 400 units with a production cost of $80 for each unit. For 2019, the company will charge overhead to jobs using direct labor COST. The estimated direct labor cost for 2019 was $80,000, and the estimated overhead cost for 2019 was $192,000. The following information shows the direct costs charged to the only 4 jobs that the company worked on during 2019: Job 20 Direct materials cost $10,000 Direct labor cost $20,000 Units on completed job 1,000 units Job 30 $14,800 $18,000 500 units Job 40 $ 16,760 $23,600 2,000 units Job 50 $ 5,000 $ 8,400 Unfinished The company purchased $60,000 of total materials during 2019. During 2019, the company finished Jobs 20, 30, and 40. Job 50 was NOT completed during 2019. The actual overhead incurred during 2019 was $175,000. Of the total overhead amount of $175,000, $9,440 was for indirect materials used. During 2019, the company sold 300 units from Job 5, 530 units from Job 20, 275 units from Job 30, and all 2,000 units from Job 40. The total sales revenue for 2019 was $400,000, and the total period expenses for 2019 were $150,000 1. Compute the underallocated or overallocated overhead for 2019, and tell whether it is underallocated or overallocated.
The Night Ranger Company uses normal job-order costing with a predetermined overhead rate. The company

had $7,000 in Materials Control at the beginning of 2019. The company includes BOTH direct and indirect

materials in the Materials Control account. At the beginning of 2019, the company had two jobs in Work in

Process. These were Job 20, which had $12,000 of product costs charged to the job last year (2018), and Job

30, which had $4,000 of product cost charged to the job last year. The company also had one job in Finished

Goods at the beginning of 2019. This was Job 5, which consisted of 400 units with a production cost of $80 for

each unit. For 2019, the company will charge overhead to jobs using direct labor COST. The estimated direct

labor cost for 2019 was $80,000, and the estimated overhead cost for 2019 was $192,000. The following

information shows the direct costs charged to the only 4 jobs that the company worked on during 2019:

Job 20

Job 30

Job 40 _

Job 50

Direct materials

cost

$10,000

$14,800

$16,760

$ 5,000

Direct labor cost

$20,000

$18,000

$23,600

$ 8,400

Units on completed job

1,000 units

500 units

2,000 units

Unfinished

The company purchased $60,000 of total materials during 2019. During 2019, the company finished Jobs 20,

30, and 40. Job 50 was NOT completed during 2019. The actual overhead incurred during 2019 was

$175,000. Of the total overhead amount of $175,000, $9,440 was for indirect materials used. During 2019,

the company sold 300 units from Job 5, 530 units from Job 20, 275 units from Job 30, and all 2,000 units from

Job 40. The total sales revenue for 2019 was $400,000, and the total period expenses for 2019 were

$150,000.

1. Compute the underallocated or overallocated overhead for 2019, and tell whether it is underallocated or

overallocated.

2. Assume that you are going to prorate (allocate) your answer in question 1 using the total balances in

the appropriate accounts at the end of the year. Compute the PERCENTAGE that would be charged to

Finished Goods using this method. You do not have to actually do the prorating. Just tell me the

percentage, and round that percentage to the nearest whole per cent, please.

3. Now assume that you want to prorate your answer in question 1 using the most theoretically correct

method. Round your percentages to the nearest per cent, but this time complete the proration process

by showing the amount of correction to each account, and then compute the ADJUSTED amount of

overhead in Work in Process Control.

4. Using actual costing based on a time period of one year, compute the actual overhead rate for 2019.

Then compute the total actual overhead that would have been charged to Job 50 during 2018 using this

rate.

A. Does the amount of actual overhead you just computed for Job 50 equal the adjusted overhead

balance that you computed for Work in Process in question 3? Should it be equal?

5. Prepare, in good form, a Schedule of Cost of Goods Manufactured for 2019 for the company. You do

not need a heading on your schedule, but it should otherwise be in good form.

6. Assuming that all underallocated or overallocated overhead is charged totally to Cost of Goods Sold,

prepare in good form an income statement for 2019 for the company. You do not need a heading on

your income statement, but it should otherwise be in good form

Answer 1

1. Predetermined overhead rate = Estimated Overhead Cost / Estimated Direct Labor Cost = $ 192,000 / $ 80,000 = 240 % of direct labor cost.

	Job 20	Job 30	Job 40	Job 50	Totals
Direct labor cost	$ 20,000	$ 18,000	$ 23,600	$ 8,400	$ 70,000
Overhead applied @ 240 % of direct labor cost	48,000	43,200	56,640	20,160	168,000

Overhead overallocated (underallocated) during 2019 = Overhead Allocated - Actual Overhead = $ 168,000 - $ 175,000 = $ (7,000).

2.

	Job 20	Job 30	Job 40	Job 50	Totals
Beginning Work in Process	$ 12,000	$ 4,000	-	-	$ 16,000
Costs added during 2019
Direct materials	10,000	14,800	16,760	5,000	46,560
Direct labor cost	20,000	18,000	23,600	8,400	70,000
Overhead applied @ 240 % of direct labor cost	48,000	43,200	56,640	20,160	168,000
Total Manufacturing Costs	78,000	76,000	97,000	33,560	284,560
Total Cost of Work in Process	90,000	80,000	97,000	33,560	300,560
Cost of Goods Manufactured	(90,000)	(80,000)	(97,000)	-	(267,000)
Ending work in process inventory	-	-	-		33,560

	Job 5	Job 20	Job 30	Job 40	Totals
Beginning finished goods inventory	$ 32,000	-	-	-	$ 32,000
Cost of Goods Manufactured	-	90,000	80,000	97,000	267,000
Cost of Goods Sold	(24,000)	(47,700)	(44,000)	(97,000)	(212,700)
Ending finished goods inventory	8,000	42,300	36,000	0	86,300

Allocation of underapplied overhead of $ 7,000 in the proportion of 33,560 : 86,300 : 212,700 to Work in Proess, Finished Goods and Cost of Goods Sold respectively.

Percentage of underapplied overhead allocated to Finished Goods = 86,300 / 332,560 * 100 = 25.95 % or 26 %