Question

Auto valet manufacturing uses a job order cost system in each of its three manufacturing department. 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:

	Departments
	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:

	Departments
	A	B	C
Direct Material 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 material 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