Question

a

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		594,000			594,000			594,000
Total overhead	$	1,644,000		$	1,854,000		$	2,064,000

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	$	32,500
Work‐in‐process (Job 6023)	$	167,000
Finished goods	$	342,000
Purchases of materials and supplies
Materials	$	411,000
Supplies	$	43,000
Materials and supplies requisitioned for production
Job 6023	$	136,000
Job 6024		122,500
Job 6025		72,000
Supplies		18,000
	$	348,500

Factory direct labor-hours (DLH)
Job 6023	10,000 DLH
Job 6024	8,500 DLH
Job 6025	6,000 DLH

  

Labor costs
Direct labor wages (all hours @ $7)	$	171,500
Indirect labor wages (12,000 hours)		54,000
Supervisory salaries		113,000
Building occupancy costs (heat, light, depreciation, etc.)
Factory facilities	$	20,000
Sales and administrative offices		7,500
Factory equipment costs
Power		10,000
Repairs and maintenance		3,500
Other		7,500
	$	21,000

  

(Note: Regardless of your answer to requirement a, assume that the predetermined overhead rate is $10 per direct labor-hour. Use this amount in answering requirements b through e.)

  

Required:

a. Compute the predetermined overhead rate (combined fixed and variable) to be used to apply overhead to individual jobs during the year. (Round your answer to 2 decimal places.)

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	$	5,000
Cost of goods sold		2,930,000
Work-in-process inventory		122,000
Finished goods inventory		237,000

  

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

  

Answer 1

a. Predetermined Overhead Rate = Estimated Manuafacturing Overhead Cost / Estimated Total Units in the year = $ 1,854,000 / 180,000 = $ 10.3 per direct labour hour

b. Total Cost of Job 6023, assuming predetermined overhead rate to be $10 per direct labour hour= Direct Material + Direct Labour + Applied Overhead

= (167000+136000+ 18000*10000/180000)+ (10000*$7)+(10000 direct labour hours x $10)= $474,000

It is assumed that Opening Work-In-Process of Job 6023 has been fully converted into producttion.

c. Factory Overhead Cost applied to Job 6025= Direct Labour Hours x Predetermined Overhead Rate = 6000 x $10= $60,000

d. Total Amount of Overhead cost is the sum of direct labour hours of all jobs multipied by predetermined overhead rate = (10000+8500+6000)x $10= $245,000

e. Actual Factory Overhead incurred during March is the sum of all indirect costs=

Indirect labor wages (12,000 hours) 54,000 + Supervisory salaries 113,000 + Factory facilities $ 20,000 + Sales and administrative offices 7,500 + Factory equipment costs power 10,000 + Repairs and maintenance 3,500 + Other 7,500 = $215,500

f. It is assumed that Opening Work-In-Process of Job 6023 has been fully converted into producttion and further, since the figures of sales during the month are not availabe therefore, account balances of inventory at the end of month are not possible to calculate.