Question

Auto valet Manufacturing uses a job order cost system in each of its three manufacturing departments. Manufacturing overhead is applied to jobs on the basis of direct labour cost in Department A, direct labour hours in Department B and machine hours in Department C. The following estimates were used in establishing the predetermined overhead rates for 2017.

Department

A B C

Manufacturing Overhead $840,000 $902,000 $850,000

Direct Labour Cost $600,000 $100,000 $600,000

Direct Labour Hours 50,000 41,000 50,000

Machine Hours 100,000 120,000 170,000

(a) Calculate Auto valet predetermined overhead rate for each department.

(b)During January 2017, the job cost sheets showed the following costs and production data:

Department

A B C

Direct materials used $88,000 $85,000 $69,000

Direct Labour Cost $50,000 $37,400 $48,600

Direct Labour Hours 4,000 3,500 4,200

Machine Hours 8,000 10,500 12,800

Manufacturing overhead incurred $78,000 $69,500 $67,200

Calculate the total manufacturing cost assigned to jobs in January in each department.

(c) Calculate the Manufacturing Overhead variance for each department.

(d)Using the total figures, state the journal entries necessary to record:

i) Total direct materials used

ii) Total direct labour costs incurred

iii) Total manufacturing overhead incurred

iv) Total manufacturing overhead applied

(e) Prepare the Manufacturing Overhead account, showing the overhead costs incurred and applied in each department. What is the balance on the account before closing?

(f) State the journal entries necessary to dispose of the variance.

Answer 1