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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)

ekkarill92 answered 2 years ago
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