In: Accounting
In December 2016, Learer Company’s manager estimated next year’s
total direct labor cost assuming 30 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 | $228,200 |
Factory supervision | 136,000 |
Rent on factory building | 149,000 |
Factory utilities | 97,000 |
Factory insurance expired | 77,000 |
Depreciation—Factory equipment | 201,000 |
Repairs expense—Factory equipment | 69,000 |
Factory supplies used | 77,800 |
Miscellaneous production costs | 45,000 |
Total estimated overhead costs | $1,080,000 |
At the end of 2017, records show the company incurred $1,563,000 of
actual overhead costs. It completed and sold five jobs with the
following direct labor costs: Job 201, $613,000; Job 202, $572,000;
Job 203, $307,000; Job 204, $725,000; and Job 205, $323,000. In
addition, Job 206 is in process at the end of 2017 and had been
charged $26,000 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.