10.00 points Durham Company uses a job-order costing system. The following trans

Question

10.00 points Durham Company uses a job-order costing system. The following transactions took place last year a. Raw materials requisitioned for use in production, $56,000 (75% died and 25% indirect). b. Factory utlity costs incurred, $16,200 c. Depreciation recorded on plant and equipment, $31,200. Three-fourths of the depreciation relates t d. Costs for salaries and wages were incurred as follows: factory equipment, and the remainder relates to selling and administrative equipment Direct labor Indirect laber S 56,000 s 19,600 11,600 41,000 Administrative salaries e. Insurance costs incurred, $6200(75% relates to factory operations, and 25% relates seling and admnstrate activies). t. Miscellaneous selling and administraive expenses incurred, $19,600 g. Manufacturing overhead was applied to production. The company apples overhead on the basis of 130% odrect labor cost h. Goods that cost $146,000 to manufacture according to their job cost sheets were transfemed to the finished goods warehouse. . Goods that had cost $136,000 to manufacture according to their job cost sheets were sold for $232,000 Required: 1. Determine the underapplied or overapplied overhead for the year

Explanation / Answer

Solution:

Calculation of Expenses

Direct Raw Material

Direct Labor

Manufacturing Overhead

Selling and Administrative Expense

a)

Raw Material issued

$42,000

$14,000

(56000*75%)

(56000*25%)

b)

Factory Utility Cost

$16,200

c)

Depreciation

$23,400

$7,800

(31200*3/4)

(31200*1/4)

d)

Direct labor

$56,000

Indirect labor

$19,600

Sales Commission

$11,600

Administrative salaries

$41,000

e)

Insurance Cost

$4,650

$1,550

(6200*75%)

(6200*25%)

f)

Misc Selling & Admn

$19,600

TOTAL

$42,000

$56,000

$77,850

$81,550

1) Under or Over Applied Overhead

Actual Overhead Incurred = $77,850

Applied Overhead = Direct labor cost $56,000 * 130% = $72,800

Applied Overheads are less than Actual Overhead, hence the overheads are under applied by $5,050 (77,850 – 72,800)

2) Income Statement

Income Statement

Sales

$232,000

Less: Cost of Goods Sold

$136,000

Gross Profit

$96,000

Less: Selling and administrative expense

$81,550

Operating Profit

$14,450

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Direct Raw Material

Direct Labor

Manufacturing Overhead

Selling and Administrative Expense

a)

Raw Material issued

$42,000

$14,000

(56000*75%)

(56000*25%)

b)

Factory Utility Cost

$16,200

c)

Depreciation

$23,400

$7,800

(31200*3/4)

(31200*1/4)

d)

Direct labor

$56,000

Indirect labor

$19,600

Sales Commission

$11,600

Administrative salaries

$41,000

e)

Insurance Cost

$4,650

$1,550

(6200*75%)

(6200*25%)

f)

Misc Selling & Admn

$19,600

TOTAL

$42,000

$56,000

$77,850

$81,550

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