Company A uses a job-order costing system and a predetermined Overhead rate base

Question

Company A uses a job-order costing system and a predetermined Overhead rate based on machine hours. At the beginning of the year, the company estimated manfacturing overhead costs for the year would be $600,000. They also estimated the annual machine hours and direct labor hours would be 30,000 and 60,000 respectively.

The following information pertains to December of the current year:

Required

a) Compute the predetermine overhead rate per machine hour.

b) Determine the total cost associated with each job.

Job 1 -
Job 2 -
Job 3-

c) Give the general journal entry to record the total amount of materials requisitioned for job 1 in Decmber.

d) Give the general entry to record total amount of overhead applied in December.

e) Give the general journal entry to record when job 2 was completed and transfered to finished goods.

Job 1 Job 2 Job 3 Totals Work in process Dec 1 20,000 60,000 40,000 120,000 December production activity    Matereials requisitioned and used 9,000 30,000 20,000 59,000    Direct labor costs ($10 per DLH) 10,000 40,000 30,00 80,000    Machine Hours 1,000 2,000 1,500 4,500

Explanation / Answer

(a)

Predtermined overhead rate = Total overhead / number of machine hours = $600,000 / 30,000 = $20/hour

(b)

Total cost associated with the job = Material used + Direct Labor cost + Overhead

(1) Job 1

Material = $9000

Labor cost = $10,000

Overhead = Machine hours x Predtermined overhead rate = 1,000 x $20 = $20,000

So total cost = $(9,000 + 10,000 + 20,000) = $39,000

(2) Job 2

Material = $30,000

Labor cost = $40,000

Overhead = Machine hours x Predtermined overhead rate = 2,000 x $20 = $40,000

So total cost = $(30,000 + 40,000 + 40,000) = $110,000

(3) Job 3

Material = $30,000

Labor cost = $3,000

Overhead = Machine hours x Predtermined overhead rate = 2,000 x $20 = $40,000

So total cost = $(30,000 + 3,000 + 40,000) = $73,000

Questions (c), (d), (e) are Accounting questions & not Finance (requires Journal entries).

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