Question

Greenway Irrigation Systems uses job order costing and applies manufacturing overhead to individual jobs by using predetermined overhead rates. In the Fabrication Department, overhead is applied on the basis of machine-hours, and in the Installation Department, it is applied on the basis of direct labor hours. At the beginning of the current year, management made the following budget estimates as a step toward determining the overhead application rates.

	Fabrication				Installation
Direct labor	$	132,000			$	300,000
Manufacturing overhead	$	600,000			$	180,000
Machine-hours		8,000				1,200
Direct labor hours		6,000				15,000

Production of a 5,350 linear-foot irrigation system for Thompson Orchards (job no. 399) was started and completed in March of the current year. Cost records for this job reveal the following information.

	Fabrication				Installation
Job no. 399 (5,350 linear-foot system):
Cost of materials used on job	$	7,200			$	3,600
Direct labor cost		1,800				9,600
Direct labor hours		80				450
Machine-hours		60				20

Required:

a. Determine the overhead rate that should be used for each department in applying overhead costs to job no. 399.

b. What was the total cost of job no. 399, and what was its cost per linear-foot?

c. Prepare the journal entries required to record the sale (on account) of job no. 399 to Thompson Orchards. The total sales price was $49,000.

d. Assume that actual overhead costs for the year were $612,000 in the Fabrication Department, and $175,000 in the Installation Department. Assume also that actual machine-hours in the Fabrication Department were 8,200, and actual direct labor hours in the Installation Department were 14,500 during the year. On the basis of this information, determine the over- or underapplied overhead in each department for the year.

Answer 1