Calculating Predetermined Overhead Rates, Recording Manufacturing and Cost Flows, and Analyzing Overhead
Babson Company uses a job order costing system with overhead applied to products on the basis of machine hours. For the upcoming year, Babson estimated its total manufacturing overhead cost at $360,000 and its total machine hours at 125,000. During the first month of operation, the company worked on three jobs and recorded the following actual direct materials cost, direct labor cost, and machine hours for each job:
| Job 101 | Job 102 | Job 103 | Total |
Direct materials cost | $15,000 | $10,000 | $5,000 | $30,000 |
Direct labor cost | $ 7,000 | $ 5,000 | $8,000 | $20,000 |
Machine hours | 5,000 hours | 4,000 hours | 1,000 hours | 10,000 hours |
Job 101 was completed and sold for $50,000.
Job 102 was completed but not sold.
Job 103 is still in process.
Actual overhead costs recorded during the first month of operations were $28,000.
Required:
1.Calculate the predetermined overhead rate.
2. Compute the total overhead applied to the Work in Process Inventory account during the first month of operations.
3. Compute the balance in the Work in Process Inventory account at the end of the first month.
4. How much gross profit would the company report during the first month of operations before making an adjustment for over–or underapplied manufacturing overhead?
5. Determine the balance in the Manufacturing Overhead account at the end of the first month. Is it over–or underapplied?
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