Question

• The Jack and Sal Company uses direct labor hours for estimating factory overhead rate. An estimated factory overhead is $500,000 for the year. An estimated direct labor cost for the year is $100,000, and estimated direct labor hours for the year is 200,000 hours.  

The following additional information is provided:  

Beginning work in process is $300,000;

Actual Direct Labor cost is $150,000;

Actual Cost of Direct Materials used is $200,000;

actual direct labor hours used 200,000 hours; and

the tot al amount reported in the Factory Overhead Control Account is $450,000.  

The ending balance in the work in process account is $100,000;

No beginning balance in the finished goods account as the company tries to apply the “pull” processing method of inventory management.  

However, there is an ending balance in the Finished Goods account of $50,000.  

The company made sales on account of $1,200,000.

Required: Using the above information,

• Prepare the predetermined overhead rate

• Prepare the applied overhead

• Identify if it is either underapplied or overapplied factory overhead.

• prepare a Schedule of Goods Manufactured, properly labelled.

Answer 1

a)Predetermined overhead rate =Estimated overhead /Estimated direct labor hours

                        = 500000 / 200000

                        = $ 2.5 per Direct labor hours

b)Applied overhead =Actual direct labor hours *Predetermined overhead rate

                        = 200000*2.5

                        = 500000

c)

Underapplied /(overapplied )overhead =Actual overhead cost -Applied overhead cost

                                  = 450000 - 500000

                                   = (50000 )overapplied

d)

STATEMENT OF COST OF GOODS MANUFACTURED
Beginning work in process inventory		300000
Direct material	200000
Direct labor	150000
Overhead applied	500000
Total manufacturing cost incurred		850000
Total work in process		1150000
less:Ending work in process inventory		(100000)
Cost of goods manufactured		1050000