Precision Instruments, Inc., uses job order costing and applies manufacturing overhead to indi- vidual jobs by using predetermined overhead rates. In Department A, overhead is applied on the basis of machine-hours, and in Department B, on the basis of direct labor hours. At the beginning of the current year, management made the following budget estimates as a step toward determining the overhead application rates:
|
Department A
|
Department B
|
|
Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
$420,000
|
$300,000
|
|
Manufacturing overhead. . . . . . . . . . . . . . . . . . . . . . . . . . .
|
$540,000
|
$412,500
|
|
Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
18,000
|
1,900
|
|
Direct labor hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
28,000
|
25,000
|
Production of 4,000 tachometers (job no. 399) was started in the middle of January and com- pleted two weeks later. The cost records for this job show the following information:
Job no. 399 (4,000 units of product):
Department A Department B
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Cost of materials used on job . . . . . . . . . . . . . . . . . . . . .
|
$6,800
|
$4,500
|
|
Direct labor cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
$8,100
|
$7,200
|
|
Direct labor hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
540
|
600
|
|
Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
250
|
100
|
Instructions
a. Determine the overhead rate that should be used for each department in applying overhead costs to job no. 399.
b. What is the total cost of job no. 399, and what is the unit cost of the product manufactured on this production order?
c. Prepare the journal entries required to record the sale (on account) of 1,000 of the tachometers to SkiCraft Boats. The total sales price was $19,500.
d. Assume that actual overhead costs for the year were $517,000 in Department A and $424,400 in Department B. Actual machine-hours in Department A were 17,000, and actual direct labor hours in Department B were 26,000 during the year. On the basis of this information, deter- mine the over- or underapplied overhead in each department for the year.