Question

The Ilarion Manufacturing Company operates a job-order costing system and applies overhead cost to jobs on the basis of direct labor cost. Its predetermined overhead rate was based on a cost formula that estimated $139,500 of manufacturing overhead for an estimated allocation base of $93,000 direct labor dollars. The company has provided the following data.

  

Inventories	Beginning		Ending
Raw materials	$	43,000	$	18,000
Work in process	$	59,000	$	43,000
Finished goods	$	85,000	$	68,000

The following actual costs were incurred during the year:

Purchase of raw materials (all direct)	$	144,000
Direct labor cost	$	86,000
Actual manufacturing overhead costs:
Insurance, factory	$	10,200
Depreciation of equipment	$	18,400
Indirect labor	$	34,100
Property taxes	$	9,900
Maintenance	$	20,000
Rent, building	$	43,000

  

Required:
1-a.	Compute the predetermined overhead rate for the year.

          

1-b.	Compute the amount of underapplied or overapplied overhead for the year.

          

2.	Prepare a schedule of cost of goods manufactured for the year. Assume all raw materials are used in production as direct materials.

          

3.	Compute the unadjusted cost of goods sold for the year. (Do not include any underapplied or overapplied overhead in your cost of goods sold figure.)

          

4.	Job 453 was started and completed during the year. What price would have been charged to the customer if the job required $4,700 in materials and $6,300 in direct labor cost, and the company priced its jobs at 40% above the job’s cost according to the accounting system?

          

  

5.	Direct labor made up $10,100 of the $43,000 ending Work in Process inventory balance. Supply the information missing below:

Answer 1

1a) Predetermine overhead rate = 139500*100/93000 = 150% of direct labour cost

1b) Overhead applied = 86000*150% = 129000

Actual overhead = 135600

Underapplied overhead = 129000-135600 = 6600

2) Prepare a schedule of cost of goods manufactured for the year. Assume all raw materials are used in production as direct materials.

Direct material
Beginning raw material	43000
Raw material purchase	144000
Raw material available for use	187000
Less: Ending raw material	-18000
Direct material used		169000
Direct labour		86000
Manufacturing overhead		129000
Total manufacturing Cost		384000
Beginning work in process		59000
Total cost of work in process		443000
Less: Ending work in process		-43000
Cost of goods manufactured		400000

3) Unadjusted cost of goods sold = 85000+400000-68000 = $417000

4) Calculate price :

Cost of goods sold = 4700+6300+(6300*1.5) = $20450

Selling price = 20450*140% = $28630

5) Calculate following :

Ending work in process	43000
Direct labour	10100
Manufacturing overhead (10100*1.5)	15150
Direct material (43000-10100-15150)	17750