Question

Mystic Inc. uses a job order costing system and applies overhead to jobs at a predetermined rate of $4.25 per direct labor dollor. During April 2010, the company spent$29,600 on direct material and $3,900 on direct labor for Job # 344. Budgeted factory overhead for the company for the year was $1,275,000.

a. How did Mystic Inc. compute the predetermined overhead rate for 2010?
B. Journalize the application of overhead to all jobs, assuming that April's total direct labor cost was $22,700.
c. How much overhead was assigned to Job #344 during April?
d. Job #344 had a balance of $18,350 on April 1. What was the April 30 balance?

Answer 1

a. How did Mystic Inc. compute the predetermined overhead rate for 2010?

Over head rate =

For 2010 ,the Over head cost will be allocated :

= Pre determined over head rate * Laborcost (allocation base)

= $4.25 * 3900 per dollar of direct labor

= $16575

For job 344, The over head cost = $16575

B. Journalize the application of overhead to all jobs, assuming that April's total direct labor cost was $22,700.
Then the allocated over head cost will be for april month :

= Pre determined over head rate * Labor cost (allocation base)

$4.25*22700

= $96475

c. How much overhead was assigned to Job #344 during April?

Asigned Over head for job 344 = $4.25*$3900

= $16575

The balnce of $18350 is actual over head incurred for job 344

But applied over head = $16575

The balance is under applied = [ 18350-16575]

= $1775

Manfacturing Over head
Actual over head	$18350	Applied over head	$16575
		Under applied	1775
$18350		$18350

The journal entry to eliminate the under applied amount:

Cost of goods sold	$1775
Manfacturing Over head		$1775

The totla cost for job 344 as follows :

	$
Direct Material	$29600
Direct Laobor	$3900
Over head	$16575
Cost of goods sold (Under applied)	$1775
Total	$51850