At the beginning of the year, Learer Company’s manager estimated
total direct labor cost assuming 40 persons working an average of
2,000 hours each at an average wage rate of $40 per hour. The
manager also estimated the following manufacturing overhead costs
for the year.
| Indirect labor | $ | 324,200 | |
| Factory supervision | 355,000 | ||
| Rent on factory building | 145,000 | ||
| Factory utilities | 93,000 | ||
| Factory insurance expired | 73,000 | ||
| Depreciation—Factory equipment | 750,000 | ||
| Repairs expense—Factory equipment | 65,000 | ||
| Factory supplies used | 73,800 | ||
| Miscellaneous production costs | 41,000 | ||
| Total estimated overhead costs | $ | 1,920,000 | |
At year-end, records show the company incurred $1,575,000 of actual
overhead costs. It completed and sold five jobs with the following
direct labor costs: Job 201, $609,000; Job 202, $568,000; Job 203,
$303,000; Job 204, $721,000; and Job 205, $319,000. In addition,
Job 206 is in process at the end of the year and had been charged
$22,000 for direct labor. No jobs were in process at the beginning
of the year. The company’s predetermined overhead rate is based on
direct labor cost.
Required
1-a. Determine the predetermined overhead rate for the
year.
1-b. Determine the total overhead cost applied to
each of the six jobs during the year.
1-c. Determine the over- or underapplied overhead
at the year-end.
2. Assuming that any over- or underapplied
overhead is not material, prepare the adjusting entry to allocate
any over- or underapplied overhead to Cost of Goods Sold at the end
of the year.
Homework Answers
Solution 1a:
Predetermined overhead rate:-
= Total overhead / Total Direct labor cost
= $1,920,000 / (40*2000*$40)
= $1,920,000/$3,200,000
= 60%
Solution 1b:
|
Computation of Overhead cost Applied to Jobs |
||
|
Job no. |
Direct Labor |
Overhead Cost applied (60%) |
|
201 |
$609,000 |
$365,400 |
|
202 |
$568,000 |
$340,800 |
|
203 |
$303,000 |
$181,800 |
|
204 |
$721,000 |
$432,600 |
|
205 |
$319,000 |
$191,400 |
|
206 |
$22,000 |
$13,200 |
|
Total |
$2,542,000 |
$1,525,200 |
Solution 1c:
|
Factory Overhead |
|||
|
Actual Overhead |
$15,75,000 |
Applied |
$15,25,200 |
|
Balance (Under-applied) |
$49,500 |
Solution 2:
|
Journal Entries |
||
|
Particulars |
Debit |
Credit |
|
Cost of Goods sold Dr |
$49,500 |
|
|
To Factory Overhead |
$49,500 |
|
|
(To allocate under applied overhead) |
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