1-28. Predetermined Overhead Rates Southern Rim Parts estimates its manufacturin

Question

1-28. Predetermined Overhead Rates Southern Rim Parts estimates its manufacturing overhead to be $495,000 and its direct labor costs to be $900,000 for year 1. The first three jobs that Southern Rim worked on had actual direct labor costs of $20,000 for Job 301, $30,000 for Job 302, and $40,000 for Job 303. For the year, actual manufacturing overhead was $479,000 and total direct labor cost was $850,000. Manufacturing overhead is applied to jobs on the basis of direct labor costs using predeter- mined rates Required a. H ow much overhead was assigned to each of the three jobs, 301, 302, and 303? What was the ov er- o

Explanation / Answer

Answer a Calculation of predetermined overhead rate based on direct labour cost Predetermined overhead rate = Estimated Overhead cost / Estimated direct labour cost = $495000 / $900000 = $0.55 per direct labour dollar Calculation of overhead cost assigned to Jobs Jobs Actual direct Labour cost Pre-determined Overhead rate Overhead assigned A B C B*C 301 $20,000 $0.55 $11,000 301 $30,000 $0.55 $16,500 303 $40,000 $0.55 $22,000 Answer b Overhead applied for the year = Actual direct labour cost * Perdetermined overhead rate = $850000 * $0.55 = $4,67,500 Under applied manufacturing overhead for the year = Actual Overhead cost for the year - Overhead applied for the year Under applied manufacturing overhead for the year = $479000 - $467500 = $11,500 Answer 7-29 Allocation of underapplied overheads on pro-rata basis of overhead applied Overhead applied Ratio Allocation Work in process 37400               0.08 $920 Finished Goods 102850               0.22 $2,530 Cost of goods sold 327250               0.70 $8,050 467500 $11,500 Journal entry to allocate underapplied overheads Date General Journal Debit Credit Work in process Inventory $920 Finished Goods Inventory $2,530 Cost of goods sold $8,050 Manufacturing Overheads $11,500

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