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
2,500 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 | 71,000 | ||
| Factory supplies used | 79,800 | ||
| Miscellaneous production costs | 47,000 | ||
| Total estimated overhead costs | $ | 1,350,000 | |
At year-end, records show the company incurred $1,574,000 of actual
overhead costs. It completed and sold five jobs with the following
direct labor costs: Job 201, $615,000; Job 202, $574,000; Job 203,
$309,000; Job 204, $727,000; and Job 205, $325,000. In addition,
Job 206 is in process at the end of the year and had been charged
$28,000 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
| Ans. 1-a | Predetermined overhead rate = Budgeted overhead cost / Budgeted Direct labor cost | |||
| $1,350,000 / $2,250,000 * 100 | ||||
| 60.00% | ||||
| *Budgetd direct labor cost = Total direct labor hours * Number of workers * Average wages rate | ||||
| 2,500 * 45 * $20 | ||||
| $2,250,000 | ||||
| Ans. 1-b | Jobs | Direct labor costs (a) | Predetermined overhead rate (b) | Applied overhead (a*b) |
| Job 201 | $615,000 | 60% | $369,000 | |
| Job 202 | $574,000 | 60% | $344,400 | |
| Job 203 | $309,000 | 60% | $185,400 | |
| Job 204 | $727,000 | 60% | $436,200 | |
| Job 205 | $325,000 | 60% | $195,000 | |
| Job 206 | $28,000 | 60% | $16,800 | |
| Total overhead cost applied | $1,546,800 | |||
| Ans. 1-c | Under applied overhead = Actual overhead - Applied overhead | |||
| $1,574,000 - $1,546,800 | ||||
| $27,200 | ||||
| If the applied overhead is less than the Actual overhead | ||||
| it means that the overhead is under applied. | ||||
| Ans. 2 | Journal entry to record the under applied overhead: | |||
| Particulars | Debit | Credit | ||
| Cost of goods sold | $27,200 | |||
| Factory overhead | $27,200 | |||
| (To record under applied overhead) |
ekkarill92 answered 2 years agoRelated Solutions
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