Question
In: Accounting
At the beginning of the year, Learer Company’s manager estimated total direct labor cost assuming 45...
At the beginning of the year, Learer Company’s manager estimated
total direct labor cost assuming 45 persons working an average of
2,000 hours each at an average wage rate of $25 per hour. The
manager also estimated the following manufacturing overhead costs
for the year.
| Indirect labor | $ | 325,200 | |
| Factory supervision | 233,000 | ||
| Rent on factory building | 146,000 | ||
| Factory utilities | 94,000 | ||
| Factory insurance expired | 74,000 | ||
| Depreciation—Factory equipment | 520,000 | ||
| Repairs expense—Factory equipment | 66,000 | ||
| Factory supplies used | 74,800 | ||
| Miscellaneous production costs | 42,000 | ||
| Total estimated overhead costs | $ | 1,575,000 | |
At year-end, records show the company incurred $1,820,000 of actual
overhead costs. It completed and sold five jobs with the following
direct labor costs: Job 201, $610,000; Job 202, $569,000; Job 203,
$304,000; Job 204, $722,000; and Job 205, $320,000. In addition,
Job 206 is in process at the end of the year and had been charged
$23,000 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.
Solutions
Expert Solution
1-a.
==> Estimated direct labor cost = 45 X 2000 hrs X $25 per hour = $2,250,000
==> Estimated overhead costs = $1,575,000
==> Predetermined overhead rate = Estimated
overhead cost / Estimated direct labor cost X 100
= $1,575,000 / $2,250,000 X 100
= 70% of direct labor cost.
1-b.
| Job 201 | Job 202 | Job 203 | Job 204 | Job 205 | Job 206 | Total | |
| Direct labor | $610,000 | $569,000 | $304,000 | $722,000 | $320,000 | $23,000 | 2,548,000 |
| Applied overhead (70% of DL) | 427,000 | 398,300 | 212,800 | 505,400 | 224,000 | 16,100 | 1,783,600 |
1-c.
==> Actual overhead cost incurred for the year = $1,820,000
==> Applied overhead cost = $1,783,600
==> Actual overhead is more than the applied overhead, therefore Overhead is $36,400 underapplied.
2.
| Date | General Journal | Debit | Credit |
| 31 | Cost of goods sold | 36,400 | |
| Factory overhead | 36,400 | ||
| (To adjust underapplied overhead) |
ekkarill92 answered 8 months agoRelated Solutions
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At the beginning of the year, Learer Company’s manager estimated
total direct labor cost assuming 45 persons working an average of
2,500 hours each at an average wage rate of $20 per hour. The
manager also estimated the following manufacturing overhead costs
for the year.
Indirect labor
$
330,200
Factory supervision
109,000
Rent on factory building
151,000
Factory utilities
99,000
Factory insurance expired
79,000
Depreciation—Factory equipment
384,000
Repairs expense—Factory equipment
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Factory supplies used
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Miscellaneous production costs
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Factory
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Rent on factory
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Factory
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Factory
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Depreciation—Factory equipment
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