A company manufactures furniture & uses job order costing. A predetermined overh

Question

A company manufactures furniture & uses job order costing. A predetermined overhead rate is used in applying manufacturing overhead to individual jobs. In Dept. 1, overhead is applied on the basis of machine-hours, in Dept. 2 on the basis of direct labor hours. At the beginning of the current year, management made the following budget estimates to assist in determining the overhead application rate:

Dept. 1 Dept. 2
Direct Labor Cost $300,000 $225,000
Direct Labor Hours 20,000 15,000
Manufacturing Overhead $420,000 $337,000
Machine-hours 12,000 7,500

Production of a batch of custom furniture ordered by City Furniture (job no. 58) was started early in the year and completed three weeks later on January 29th. The records for this job show the following cost information:

Direct materials cost $10,100 $7,600
Direct labor cost $16,500 $11,100
Direct labor hours 1,100 740
Machine-hours 750 500

Selected addition information for January:

Direct labor hours - month of January 1,600 1,200
Machine-hours - month of January 1,100 600
Manufacturing overhead incurred in January $39,010 $26,540

a. Compute the predetermined overhead rate for each department.
b. what is the total cost of the furniture produced for City Furniture?
c. Prepare the entries required to record the sale (on account) of the furniture to City Furniture.
The sales price of the order was $147,000
d. Determined the over- or under applied overhead for each department at the end of January.

Explanation / Answer

a. Department One= 420,000/12,000=35 Department Two=337,5000/15,000=22.5 ---------------------------------------------------------------- b. Department One=10,100+16,500+750*35=52,850 Department Two=7,600+11,100+22.5*740=35,350 The total cost= 52,850+35,350=88,200 --------------------------------------------------------------------------------------- d. Department One=39,010-35*1,100=510 (overapplied overhead 510) Department Two=26,540-22.5*1,200=-460 (underapplied overhead 460)

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