In: Accounting
In December 2016, Learer Company’s manager estimated next year’s total direct labor cost assuming 40 persons working an average of 2,000 hours each at an average wage rate of $30 per hour. The manager also estimated the following manufacturing overhead costs for 2017.
Indirect labor $ 340,200 Factory supervision 110,000 Rent on factory building 101,000 Factory utilities 107,000 Factory insurance expired 87,000 Depreciation—Factory equipment 473,000 Repairs expense—Factory equipment 79,000 Factory supplies used 87,800 Miscellaneous production costs 55,000 Total estimated overhead costs $ 1,440,000 At the end of 2017, records show the company incurred $1,599,000 of actual overhead costs. It completed and sold five jobs with the following direct labor costs: Job 201, $623,000; Job 202, $582,000; Job 203, $317,000; Job 204, $735,000; and Job 205, $333,000. In addition, Job 206 is in process at the end of 2017 and had been charged $36,000 for direct labor. No jobs were in process at the end of 2016. The company’s predetermined overhead rate is based on direct labor cost. Required 1-a. Determine the predetermined overhead rate for 2017. 1-b. Determine the total overhead cost applied to each of the six jobs during 2017. 1-c.
Determine the over- or underapplied overhead at year-end 2017. 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 2017.
Req 1-a | |||||||
Pre-determined Oh rate: | |||||||
Total Direct labour cost: | |||||||
Number of employees | 40 | ||||||
Multiply: Hours annual per employee | 2000 | ||||||
Total DLH worked | 80000 | ||||||
Multiply: Labour rate per hour | 30 | ||||||
Directt labour cost | 2400000 | ||||||
OH rate based on % of DLC: | |||||||
Estimated Overheads | 1440000 | ||||||
Divide: Direct labour cost | 2400000 | ||||||
OH rate based on % of DLC: | 60% | ||||||
Req 1-b: | |||||||
Overheads applied | DLC | Oh rate | OH applied | ||||
Job 201. | 623000 | 60% | 373800 | ||||
Job 202 | 582000 | 60% | 349200 | ||||
Job 203 | 317000 | 60% | 190200 | ||||
Job 204 | 735000 | 60% | 441000 | ||||
Job 205 | 333000 | 60% | 199800 | ||||
Job 206 | 36000 | 60% | 21600 | ||||
Total Overheads applied | 1575600 | ||||||
Req 2. | |||||||
Total Overheads incurred: | 1599000 | ||||||
Overheads applied | 1575600 | ||||||
Under-applied Ooverheads | 23400 | ||||||
Adjusting Entry: | |||||||
S.no. | Accounts title and explanation | Debit $ | Credit $ | ||||
a. | Cost of Goods sold | 23400 | |||||
Manufacturing Overheads | 23400 | ||||||