Allocating the over or underapplied overhead


Response to the following problem:

In December 2010, Monk Company's manager estimated next year's total direct labor cost assuming 40 persons working an average of 1,500 hours each at an average wage rate of $50 per hour. The manager also estimated the following manufacturing overhead costs for year 2011.

Indirect labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 540,000

Factory supervision . . . . . . . . . . . . . . . . . . . . . . . . 450,000

Rent on factory building . . . . . . . . . . . . . . . . . . . . 360,000

Factory utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000

Factory insurance expired . . . . . . . . . . . . . . . . . . 60,000

Depreciation-Factory equipment . . . . . . . . . . . 300,000

Repairs expense-Factory equipment . . . . . . . . . 180,000

Factory supplies used . . . . . . . . . . . . . . . . . . . . . . 110,000

Miscellaneous production costs . . . . . . . . . . . . . . 200,000

Total estimated overhead costs . . . . . . . . . . . . . . $2,400,000

At the end of 2011, records show the company incurred $2,200,000 of actual overhead costs. It completed and sold five jobs with the following direct labor costs: Job 625, $300,000; Job 626, $225,000; Job 627, $975,000; Job 628, $240,000; and Job 629, $375,000. In addition, Job 630 is in process at the end of 2011 and had been charged $75,000 for direct labor. No jobs were in process at the end of 2010. The company's predetermined overhead rate is based on direct labor cost.

Required:

1. Determine the following.

a. Predetermined overhead rate for year 2011.

b. Total overhead cost applied to each of the six jobs during year 2011.

c. Over- or underapplied overhead at year-end 2011.

2. Assuming that any over- or underapplied overhead is not material, prepare the adjusting entry to allocate any over- or underapplied overhead to Cost of Goods Sold at the end of year 2011.

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Cost Accounting: Allocating the over or underapplied overhead
Reference No:- TGS02946219

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