For 2010, Omaha Mechanical has a monthly overhead cost formula of $42,900 + $6 p
ID: 2441975 • Letter: F
Question
For 2010, Omaha Mechanical has a monthly overhead cost formula of $42,900 + $6 per direct labor hour. The firm's 2010 expected annual capacity is 78,000 direct labor hours, to be incurred evenly each month. Making one unit of the companys product requires 1.5 direct labor hours.1) Determine the total overhead to be applied per unit of product in 2010.
2) Prepare journal entries to record the application of overhead to Work in Process Inventory and the incurrence of $128,550 of actual overhead in January 2010, when 6,390 direct labor hours were worked.
3) Given the actual direct labor hours in part (2) how many units would you have expected to be produced in January?
Explanation / Answer
1) Determine the total overhead to be applied per unit of product in 2010.
$42,900 + 78,000 x $6.00 = $510,900
Units expected to be
produced 78,000 / 1.5 = 52,000 units
Total overhead
per unit of product $510,900 / 52,000 = $9.825
2) Prepare journal entries to record the application of overhead to Work in Process Inventory and the incurrence of $128,550 of actual overhead in January 2010, when 6,390 direct labor hours were worked.
Work In Process Inventory (4,260 x $9.825) $41,855
Manufacturing Overhead $41,855
Manufacturing Overhead $128,550
Cash $128,550
3) Given the actual direct labor hours in part (2) how many units would you have expected to be produced in January?
6,390 hours / 1.50 = 4,260 units to be produced in January, 2010
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