Question

Check my workCheck My Work button is now enabled3

Item 1

Item 1

Kansas Company uses a job costing accounting system for its production costs. The company uses a predetermined overhead rate based on direct labor-hours to apply overhead to individual jobs. The company prepared an estimate of overhead costs at different volumes for the current year as follows.

Direct labor-hours		150,000				180,000				210,000
Variable overhead costs	$	1,050,000			$	1,260,000			$	1,470,000
Fixed overhead costs		684,000				684,000				684,000
Total overhead	$	1,734,000			$	1,944,000			$	2,154,000

The expected volume is 180,000 direct labor-hours for the entire year. The following information is for March, when Jobs 6023 and 6024 were completed.

Inventories, March 1
Materials and supplies	$	30,500
Work‐in‐process (Job 6023)	$	166,000
Finished goods	$	346,000
Purchases of materials and supplies
Materials	$	402,000
Supplies	$	43,000
Materials and supplies requisitioned for production
Job 6023	$	137,000
Job 6024		107,500
Job 6025		74,000
Supplies		20,000
	$	338,500

Factory direct labor-hours (DLH)
Job 6023	11,000 DLH
Job 6024	9,500 DLH
Job 6025	6,000 DLH

  

Labor costs
Direct labor wages (all hours @ $8)	$	212,000
Indirect labor wages (11,000 hours)		49,500
Supervisory salaries		107,000
Building occupancy costs (heat, light, depreciation, etc.)
Factory facilities	$	19,500
Sales and administrative offices		7,500
Factory equipment costs
Power	$	13,000
Repairs and maintenance		5,500
Other		8,000
	$	26,500

Required:

a. Compute the predetermined overhead rate (combined fixed and variable) to be used to apply overhead to individual jobs during the year.

(Note: Regardless of your answer to requirement [a], assume that the predetermined overhead rate is $8 per direct labor-hour. Use this amount in answering requirements [b] through [e].)

b. Compute the total cost of Job 6023 when it is finished.

c. How much of factory overhead cost was applied to Job 6025 during March?

d. What total amount of overhead was applied to jobs during March?

e. Compute actual factory overhead incurred during March.

f. At the end of the year, Kansas Company had the following account balances:

  

Overapplied overhead	$	1,000
Cost of goods sold		3,030,000
Work-in-process inventory		115,000
Finished goods inventory		251,000

  

Assuming that the overapplied overhead is not material, show the new account balances in the following table.

Answer 1

Solution a:
Computation of Predetermined Overhead rate
Total overhead	1944000
/ Direct labor hours	180000
Predetermined overhead rate	10.80
Solution b:
Computation of Total Cost of Job 6023
Work in process, March 1	166000
Add: Materials requisitioned	137000
Add: Direct labor(11000*$8)	88000
Add: Overehead cost (11000*$8)	88000
Total cost of Job 6023	479000
Solution c:
Factory Overhead cost applied to Job 6025
Direct labor hours of Job 6025	6000
*Predetermined Overhead rate	8
Factory overhead cost applied to Job 6025	48000
Solution d:
Total overhead applied to Jobs during March
Total Direct labor hours (11000+9500+6000)	26500
*Predetermined Overhead rate	8
Factory overhead cost applied to Job 6025	212000
Solution e:
Computation of actual factory overhead incurred
Supplies	20000
Indirect labor wages	49500
Supervisory salaries	107000
Factory facilities	19500
Factory Equipment costs (14000+5000+8000)	26500
Total actual factory overhead incurred	222500
Solution f:
New Account Balances
Overapplied Overhead	0
Cost of goods sold ($3030000 -$1000)*	3029000
Work in process inventory	122000
Finished goods inventory	256000
*as overapplied overhead is not material, so adjusted with only cost of goods sold