Jones Corporation uses a budgeted factory overhead rate to apply overhead to pro
ID: 2369209 • Letter: J
Question
Jones Corporation uses a budgeted factory overhead rate to apply overhead to production.
Direct labor
costs are the cost driver for overhead costs. The following data are available for the year ending December
31, 2010:
Budgeted factory overhead $675,000
Actual factory overhead $726,000
Budgeted direct labor costs $450,000
Actual direct labor costs $482,000
Cost of goods sold $150,000
Direct materials inventory, December 31, 2010 $120,000
Work-in-process inventory, December 31, 2010 $100,000
Finished goods inventory, December 31, 2010 $250,000
Required:
A) Compute the budgeted factory overhead rate.
B) Compute the applied overhead costs.
C) What is the overhead variance?
D) Prorate the overhead variance to the appropriate accounts.
Explanation / Answer
a. Budgeted factory overhead rate = $675,000/12,500 = $54
b. Factory overhead applied = $54*13,325 = $719,550
Actual Factory overhead incurred = $716,000
The applied overhead based on direct labor-hours = $719,550 - $716,000 = $3550
c. The amount of overhead cost that has been applied to work in process ($719,550) is greater than the actual overhead cost for the year ($716,000), and so overhead is over-applied.
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