Question
In: Accounting
In December 2016, Learer Company’s manager estimated next year’s total direct labor cost assuming 35 persons...
In December 2016, Learer Company’s manager estimated next year’s
total direct labor cost assuming 35 persons working an average of
3,000 hours each at an average wage rate of $20 per hour. The
manager also estimated the following manufacturing overhead costs
for 2017.
| Indirect labor | $335,200 |
| Factory supervision | 165,000 |
| Rent on factory building | 156,000 |
| Factory utilities | 104,000 |
| Factory insurance expired | 84,000 |
| Depreciation—Factory equipment | 413,000 |
| Repairs expense—Factory equipment | 76,000 |
| Factory supplies used | 84,800 |
| Miscellaneous production costs | 52,000 |
| Total estimated overhead costs | $1,470,000 |
At the end of 2017, records show the company incurred $1,843,000 of
actual overhead costs. It completed and sold five jobs with the
following direct labor costs: Job 201, $620,000; Job 202, $579,000;
Job 203, $314,000; Job 204, $732,000; and Job 205, $330,000. In
addition, Job 206 is in process at the end of 2017 and had been
charged $33,000 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.
Solutions
Expert Solution
Ans:
1a)predetermined overhead rate for 2017
Estimated overhead cost/Direct labor cost
=$14,70,000/$21,00,000
=70%
Note:
Estimated overhead cost= $14,70,000
Direct labor cost=35persons*3,000hours*$20=$21,00,000
1b)Statement showing total overhead cost applied to each of the six jobs during 2017.
Overheads applied=Direct labor cost*70%
|
job |
Direct labor cost $ |
Overhead cost Allocated$ |
|
201 |
620,000 |
434,000 |
|
202 |
579,000 |
405,300 |
|
203 |
314,000 |
219,800 |
|
204 |
732,000 |
512,400 |
|
205 |
330,000 |
231,000 |
|
206 |
33,000 |
23,100 |
|
Total |
1,825,600 |
1c) underapplied overhead at year-end 2017.
Actual overhead cost incurred = $18,43,000
Overhead cost Applied =$18,25,600
So under Applied overhead=$17,400
2)Adjusting entry to Allocate underapplied overhead
| Date | Account Title | Debit $ | Credit $ |
| 1 | cost of goods sold | 17,400 | |
| Factory overheads | 17,400 | ||
| (Entry to Record underapplied overheads adjusted to cost of goods sold) |
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