Question

Davisview Corporation manufactures reproductions of eighteenth-century, classical-style furniture. It uses a job costing system that applies factory overhead on the basis of direct labour hours. Budgeted factory overhead for the year was $1,275,000 and management budgeted 87,500 direct labour hours. Davisview had no Materials, Work-in-Process, or FInished Goods Inventory at the beginning of September. These transactions were recorded during September:

1) Purchased 5,100 ft^2 of oak on account at $27 per ft^2.

2) Purchased 60 gallons of glue on account at $37 per gallon (indirect material).

3) Requisitioned 3,550 ft^2 of oak and 32 gallons of glue for production.

4) Incurred and paid payroll costs of $188,000. Of this amount, $47,000 were indirect labour costs; direct labour personnel earned $23 per hour.

5) Paid factory utility bill, $15,300 in cash.

6) September's insurance cost for the manufacturing property and equipment was $3,600. The premium had been paid in March.

7) Incurred $8,600 depreciation on manufacturing equipment for September.

8) Recorded $2,500 depreciation on an administrative asset.

9) Paid advertising expenses in cash, $5,600.

10) Incurred and paid other factory overhead costs, $13,600/

11) Incurred miscellaneous selling and administrative expenses, $13,500.

12) Applied factory overhead to production on the basis of direct labour hours.

13) Produced completed well costing $147,000 during the month.

14) Sales on account in September were $136,000. The Cost of Good Sold was $113,500

Questions:

1) Compute the frim's predetermined overhead application rate for the year.

2) Calculate the amount of overapplied or underapplied overhead to be closed to the Cost of Goods Sold account on September 30.

3) Prepare a schedule of Cost of Goods Manufactured and Cost of Goods Sold.

4) Prepare the income statement for September.

Answer 1

1	Predetermined overhead application rate=Budgeted factory overhead/ budgeted direct labour hours=1275000/87500=$ 14.57 per DLH
2	Actual overhead:
				$
	Glue used		(32*37)	1184
	Indirect labor costs			47000
	Factory utility			15300
	Insurance cost			3600
	Depreciation on Mfg equipment			8600
	Other factory overhead costs			13600
	Total			89284
	Overhead applied=Actual direct labor hours*Predetermined overhead application rate
	Actual direct labor hours=Direct labor cost/Labor rate
	Direct labor cost=Total payroll costs-Indirect labor=188000-47000=$ 141000
	Actual direct labor hours=141000/23=6130.44
	Overhead applied=6130.44*14.57=89320.51=$ 89321
	Overhead applied > Actual overhead.Hence,overhead is overapplied
	Overapplied overhead=89321-89284=$ 37
3		Schedule of Cost of Goods Manufactured
					$	$
	Direct materials used			(3550*27)		95850
	Direct labor cost					141000
	Manufacturing overhead applied					89321
	Total manufacturing cost					326171
	Add: Beginning work in process					0
	Total work in process					326171
	Less: Ending work in process				(Note:1)	179171
	Cost of goods manufactured					147000
		Schedule of cost of goods sold
						$
	Cost of goods manufactured					147000
	Add: Beginning balance of finished goods					0
						147000
	Less: Ending balance of finished goods				(Note:2)	33500
	Cost of goods sold (Unadjusted)					113500
	Less: Over-applied overhead					31
	Cost of goods sold (Adjusted)					113469
	Note:1
	Ending work in process:
				$
	Beg bal.			0
	Add:
	Direct materials used		(3550*27)	95850
	Direct labor cost			141000
	Manufacturing overhead applied			89321
				326171
	Less:Products completed			147000
	End bal.			179171