Pre-determined overhead application rates and overhead application Mark and Jane

Question

Pre-determined overhead application rates and overhead application Mark and Jane both use predetermined overhead application rates to apply manufacturing overhead to their department's production. Mark's application rate is based on machine hours while Jane uses direct labour hours. Budgeted production and cost data for the two managers are as follows. Mark Jane Manufacturing overhead Units Machine hours Materials cost Direct labour hours Direct labour cost 304,000 10,000 16,000 $ 155,000 15,000 $ 450,000 $220,000 20,000 9,700 400,000 10,000 300,000 Actual costs and production information are provided below. Mark Jane Manufacturing overhead Units Machine hours Materials cost Direct labour hours Direct labour cost $305,000 9,800 15,900 $ 152,000 14,000 $430,000 $ 216,000 20,500 9,750 395,000 10,400 $ 320,000 REQUIRED 1. Compute predetermined overhead application rates for Mark and Jane. 2. Calculate the overhead applied for each manager 3. Calculate the over or under-application of overhead for each manager 4 Calculate the cost per unit of production for each manager. Use actual labour and material costs and applied manufacturing overhead S. Mark sold 9,000 units for $900,000 while Jane had sales of 15,000 units for $ 750,000. Provide journal entries to record the sales and cost of sales for each manager

Explanation / Answer

Solution 1:

Predetermined Overhead application rate for Mark = budgeted manufacturing overhead / budgeted machine hours

= $304000 / 16000 = $19 per machine hour

Predetermined Overhead application rate for Jane=budgeted manufacturing overhead /budgeted Direct Labor hours

= $220000 / 10000 = $22 per direct labor hour

Solution 2:

Overhead applied for Mark = Predetermined overhead rate * Actual Machine hours = $19*15900 = $302,100

Overhead applied for Jane = Predetermined overhead rate * Actual Direct Labor hours = $22*10400 = $228,800

Solution 3:

Over or under-application of overhead for Mark = Applied Overhead - Actual Overhead

= $302100- $305000 = -$2,900 (under applied)

Over or under-application of overhead for Jane = Applied Overhead - Actual Overhead

= $228800 - $216000 = $12,800 (Over applied)

Solution 4:

Cost per unit of production for Mark= (Actual material cost+ Actual labor cost + applied Overhead) / Number of units

= ($152000 +$430000 + $302100) / 9800 = $884100 / 9800 = $90.214286

Cost per unit of production for Jane= (Actual material cost+ Actual labor cost + applied Overhead) / Number of units

= ($395000 +$320000 + $228800) / 9800 = $943800 / 20500 = $46.039024

Solution 5:

Journal Entries - Mark S.no. Particulars Debit Credit 1 Accounts Receivable Dr   $900,000.00       To Sales Revenue $900,000.00 (To record Sales of 9000 units for manager mark) 2 Cost of Goods sold Dr (9000*$90.214286) 811928.57      To Inventories 811928.57 (To record cost of sales of 9000 units)

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