Question

1.

Johnson Corporation (a television company) uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. The Corporation has provided the following estimated costs for the next year:

Direct materials	$	20,000
Direct labor	$	15,000
Rent on factory building	$	25,000
Sales salaries	$	30,000
Depreciation on factory equipment	$	10,000
Indirect labor	$	20,000
Production supervisor's salary	$	10,000

Johnson Corporation estimates that 40,000 direct labor-hours will be worked during the year to produce televisions. The predetermined overhead rate per hour will be: __________.

2. Zhao Corporation has two production departments, Casting and Customizing. The company uses a job-order costing system and computes a predetermined overhead (OH) rate in each production department. The Casting Department's predetermined overhead rate is based on machine-hours and the Customizing Department's predetermined overhead rate is based on direct labor-hours. At the beginning of the current year, the company had made the following estimates:

	Casting		Customizing
Machine-hours		20,000		10,000
Direct labor-hours		5,000		15,000
Total fixed manufacturing overhead cost	$	175,000	$	70,000
Variable manufacturing OH per machine-hour	$	3.00
Variable manufacturing OH per direct labor-hour			$	5.00

During the current month the company started and finished a custom engagement ring. The following data were recorded for this ring:

	Casting		Customizing
Machine-hours	50		15
Direct labor-hours	5		30

The amount of overhead applied in the Customizing Department to the custom engagement ring is closest to: ___________.

3. Anderson Corporation had $50,000 of raw materials on hand on August 1. During the month, the Corporation purchased an additional $75,000 of raw materials and applied $60,000 materials to jobs. Journalize the entries for these transactions.

4. Prepare the journal entry for the over or underapplied overhead depicted in this account below. The company closes overhead out to Cost of Goods Sold. Also indicate whether gross margin will be increased or decreased by this entry.

Manufacturing Overhead

(2) 9,000	(2) 167,000
(3) 15,000
(4) 80,000
(5) 30,000
(6) 25,000
159,000	167,000
	Balance: 8,000

Answer 1

Solution 1:

Estimated factory overhead = Rent on factory building + depreciation on factory equipment + Indirect labor + Production supervisor salary

= $25,000 + $10,000 + $20,000 + $10,000 = $65,000

Estimated direct labor hours = 40000

Predetermined overhead rate per hour = Estimated manufacturing overhead cost / Estimated direct labor hours

= $65,000 / 40000 = $1.625 per hour

Solution 2:

Total estimated overhead for customizing department = Variable overhead + Fixed overhead

= (15000 *$5) + $70,000 = $145,000

Predetermined overhead rate in customizing = $145,000 / 15000 = $9.666667 per direct labor hour

Direct labor hour used by customized department in custom engagement ring = 30 hours

Amount of overhead applied in the Customizing Department to the custom engagement ring = 30 * $9.66667 = $290

Solution 3:

Journal Entries - Anderson Corporation
Event	Particulars	Debit	Credit
1	Raw material inventory Dr	$75,000.00
	To Accounts Payable		$75,000.00
	(To record material purchased on account)
2	Work In Process Inventory Dr	$60,000.00
	To Raw material inventory		$60,000.00
	(To record raw material used in production)

Solution 4:

Journal Entries
Event	Particulars	Debit	Credit
1	Manufacturing overhead Dr	$8,000.00
	To Cost of goods sold		$8,000.00
	(Being overapplied overhead closed to COGS)

As cost of goods sold decreased due to overapplied overhead, therefore Gross margin will be increaseed by this entry.