Question 1 - Tyler Tooling Company uses a job order costing system with overhead applied to products on the basis of machine hours. For the upcoming year, the company estimated its total manufacturing overhead cost at $250,000 and total machine hours at 62,500. During the first month of operations, the company worked on three jobs and recorded the following actual direct materials cost, direct labor cost, and machine hours for each job:
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Job 101
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Job 102
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Job 103
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Total
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Direct materials cost
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$12,000
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$9,000
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$6,000
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$27,000
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Direct labor cost
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$18,000
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$7,000
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$6,000
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$31,000
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Machine hours
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2,000 hours
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3,000 hours
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1,000 hours
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6,000 hours
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Job 101 was completed and sold for $50,000.
Job 102 was completed but not sold.
Job 103 is still in process.
Actual overhead costs recorded during the first month of operations totaled $25,000.
Requirement 1: Calculate the predetermined overhead rate.
Requirement 2: Compute the total manufacturing overhead applied to the Work in Process Inventory account during the first month of operations.
Requirement 3: Compute the balance in the Work in Process Inventory account at the end of the first month.
Requirement 4: How much gross profit would the company report during the first month of operations before making an adjustment for over- or underapplied manufacturing overhead?
Requirement 5: Determine the balance in the Manufacturing Overhead account at the end of the first month. Is it over- or underapplied?
Question 2 - Christopher's Custom Cabinet Company uses a job order costing system with overhead applied as a percentage of direct labor costs. Inventory balances at the beginning of 2009 follow:
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Raw materials inventory
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$15,000
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Work in process inventory
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5,000
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Finished goods inventory
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20,000
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The following transactions occurred during January:
(a) Purchased materials on account for $26,000.
(b) Issued materials to production totaling $22,000, 90 percent of which was traced to specific jobs and the remainder treated as indirect materials.
(c) Payroll costs totaling $15,500 were recorded as follows:
$10,000 for assembly workers
3,000 for factory supervision
1,000 for administrative personnel
1,500 for sales commissions
(d) Recorded depreciation: $6,000 for machines, $1,000 for office copier.
(e) Had $2,000 in insurance expire, allocated equally between manufacturing and administrative expenses.
(f) Paid $6,500 in other factory costs in cash.
(g) Applied manufacturing overhead at a rate of 200 percent of direct labor cost.
(h) Completed all jobs but one; the job cost sheet for this job shows $2,100 for direct materials, $2,000 for direct labor, and $4,000 for applied overhead.
(i) Sold jobs costing $50,000; the company uses cost-plus pricing with a markup of 30 percent.
Requirement 1: Record the beginning balances, post the January transaction in the T-accounts and compute the final balances.
Requirement 2: Determine how much gross profit the company would report during the month of January before any adjustment is made for the overhead balance.
Requirement 3: Determine the amount of over- or underapplied overhead.
Requirement 4: Compute adjusted gross profit assuming that any over- or underapplied overhead balance is adjusted directly to Cost of Goods Sold.