Question 1 - Predetermined OH rate
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 company's product requires 1.5 direct labor hours.
a. Determine the total overhead to be applied per unit of product in 2010.
b. 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.
c. Given the actual direct labor hours in part (b), how many units would you have expected to be produced in January?
Question 2 - Predetermined OH rate
Langston Automotive Accessories applies overhead using a combined rate for fixed and variable overhead. The rate is 250 percent of direct labor cost. During the first three months of the current year, actual costs incurred were as follows:
Direct Labor Cost Actual Overhead
January $180,000 $440,000
February 165,000 420,400
March 170,000 421,000
a. What amount of overhead was applied to production in each of the three months?
b. What was the underapplied or overapplied overhead for each of the three months and for the first quarter?
Question 3 - Underapplied or overapplied overhead
At the end of 2010, Jackson Tank Company's accounts showed a $66,000 credit balance in Manufacturing Overhead Control. In addition, the company had the following account balances:
Work in Process Inventory $384,000
Finished Goods Inventory 96,000
Cost of Goods Sold 720,000
a. Prepare the necessary journal entry to close the overhead account if the balance is considered immaterial.
b. Prepare the necessary journal entry to close the overhead account if the balance is considered material.
c. Which method do you believe is more appropriate for the company and why?