Question

1. Kansas Company uses a job costing accounting system for its production costs. The company uses a predetermined overhead rate based on direct labor-hours to apply overhead to individual jobs. The company prepared an estimate of overhead costs at different volumes for the current year as follows:

Direct labor-hours		150,000			180,000			210,000
Variable overhead costs	$	900,000		$	1,080,000		$	1,260,000
Fixed overhead costs		666,000			666,000			666,000
Total overhead	$	1,566,000		$	1,746,000		$	1,926,000

The expected volume is 180,000 direct labor-hours for the entire year. The following information is for March, when Jobs 6023 and 6024 were completed:

Inventories, March 1
Materials and supplies	$	31,000
Work‐in‐process (Job 6023)	$	164,000
Finished goods	$	343,500
Purchases of materials and supplies
Materials	$	399,000
Supplies	$	44,000
Materials and supplies requisitioned for production
Job 6023	$	135,000
Job 6024		112,500
Job 6025		71,500
Supplies		19,000
	$	338,000

Factory direct labor-hours (DLH)
Job 6023	12,000 DLH
Job 6024	9,000 DLH
Job 6025	6,500 DLH

  

Labor costs
Direct labor wages (all hours @ $9)	$	247,500
Indirect labor wages (11,000 hours)		52,800
Supervisory salaries		109,000
Building occupancy costs (heat, light, depreciation, etc.)
Factory facilities	$	20,000
Sales and administrative offices		7,000
Factory equipment costs
Power		11,000
Repairs and maintenance		5,000
Other		8,500
	$	24,500

  

(Note: Regardless of your answer to requirement a, assume that the predetermined overhead rate is $10 per direct labor-hour. Use this amount in answering requirements b through e.)

  

Required:

a. Compute the predetermined overhead rate (combined fixed and variable) to be used to apply overhead to individual jobs during the year. (Round your answer to 2 decimal places.)

b. Compute the total cost of Job 6023 when it is finished.

  

c. How much of factory overhead cost was applied to Job 6025 during March?

  

d. What total amount of overhead was applied to jobs during March?

  

e. Compute actual factory overhead incurred during March.

  

  

f. At the end of the year, Kansas Company had the following account balances:

  

Overapplied overhead	$	2,000
Cost of goods sold		2,910,000
Work-in-process inventory		104,000
Finished goods inventory		255,000

  

Assuming that the overapplied overhead is not material, show the new account balances in the following table.

      

Answer 1

Solution a:
Computation of Predetermined Overhead rate
Estimated Total overhead	1746000
/ Astimated Direct labor hours	180000
Predetermined overhead rate = estimated total overhead / Estimated direct labor hrs	9.7

.**Note: Regardless of your answer to requirement a, assume that the predetermined overhead rate is $10 per direct labor-hour. Use this amount in answering requirements b through e

Solution b:
Computation of Total Cost of Job 6023
Work in process, March 1	164000
Add: Materials requisitioned	135000
Add: Direct labor(12000*$9)	108000
Add: Overehead cost (12000*$10)	120000
Total cost of Job 6023	527000

.

Solution c:
Factory Overhead cost applied to Job 6025
Direct labor hours of Job 6025	6500
*Predetermined Overhead rate	10.00
Factory overhead cost applied to Job 6025	65000

.

.

Solution d:
Total overhead applied to Jobs during March
Total Direct labor hours (12000+9000+6500)	27500
*Predetermined Overhead rate	10.00
Factory overhead cost applied to jobs	275000

..

Solution e:
actual factory overhead incurred during March.
Indirect labor wages (11,000 hours)	52,800
Supervisory salaries	1,09,000
Building occupancy costs (heat, light, depreciation, etc.)
Factory facilities	20,000
Factory equipment costs
Power	11,000
Repairs and maintenance	5,000
Other	8,500
Supplies	19,000
Total actual overhead incurred	225300

..

f. At the end of the year, Kansas Company had the following account balances:

  

Overapplied overhead	$	2,000
Cost of goods sold		2,910,000
Work-in-process inventory		104,000
Finished goods inventory		255,000

  

Assuming that the overapplied overhead is not material, show the new account balances in the following table.

if the Overapplied overhead is immeterial it is only adjusted to cost of goods sold

The overhead applied is deducted from cost of goods sold

new balance of

Cost of goods sold = 2,910,000 - 2000 = 2908000

and remainig alance are ot change.

Cost of goods sold	2908000
Work-in-process inventory	104,000
Finished goods inventory	255,000

Journsl entry like:-

Overhaed control Dr 2000

Cost of goods sold CR 2000