Question

In: Accounting

Pristine Painting Services uses a job order cost system to collect the costs of its home...

Pristine Painting Services uses a job order cost system to collect the costs of its home painting business. Each customer’s house is treated as a separate job. Overhead is applied to each job based on the number of painting hours required for each house. Listed below are the data for the current year:

                                    Estimated overhead               $780,000

                                    Actual overhead                      $772,450

                                    Estimated painting hours            39,000

                                    Actual painting hours                  38,750

The company uses Operating Overhead in place of Manufacturing Overhead.

Instructions

(a)        Compute the predetermined overhead rate.

(b)        Prepare the entry to apply the overhead for the year.

(c)        Determine whether the overhead was under- or overapplied and by how much.

(d)        If estimated overhead increases to $799,500, discuss how this would impact (1) applied overhead and (2) actual overhead. Support your discussion with calculations. Determine whether overhead would be under- or overapplied and by how much.

Solutions

Expert Solution

a)        Compute the predetermined overhead rate.

Predetermine overhead rate = Estimated overhead/Estimated painting hours

= 780000/39000

Predetermine overhead rate = 20 per painting hour

(b)        Prepare the entry to apply the overhead for the year.

Date accounts & explanation debit credit
Work in process (38750*20) 775000
Operating overhead 775000
(To record applied overhead)

c)        Determine whether the overhead was under- or overapplied and by how much.

Over/Under applied overhead = Applied overhead-actual overhead

= 775000-772450

Over applied overhead = 2550

(d)        If estimated overhead increases to $799,500, discuss how this would impact (1) applied overhead and (2) actual overhead. Support your discussion with calculations. Determine whether overhead would be under- or overapplied and by how much.

1) Predetermine overhead rate = 799500/39000 = 20.50 per painting hour

Applied overhead = 38750*20.5 = 794375

Applied overhead will increase by 794375-775000 = 19375

Actual overhead remain same.

Over or under applied overhead = Applied overhead-actual overhead

= 794375-772450

Over applied overhead = 21925

ekkarill92 answered 1 year ago
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