Durham Company uses a job order costing system. The following transactions took

Question

Durham Company uses a job order costing system. The following transactions took place last year: A. Raw materials requisitioned for use in production, $40,000 (80% direct and 20% indirect). B. Factory utility costs incurred $14,600. C. Depreciation recorded on plant and equipment, $28,000. Three fourths of the depreciation relates to factory equipment and the remainder relates to selling and administrative equipment. D. Costs for salaries and wages were incurred as follows: Direct labor $40,000, Indirect Labor $18,000 Sales Commissions $ 10,000 and Administrative Salaries $25,000 E. Insurance costs incurred $3,000 ( 80% relates to factory operations and 20% relates to selling and administrative activities). F Miscellaneous selling and administrative expenses incurred $18,000. G. Manufacturing overhead was applied to production. The company applies overhead on the basis of 150% of direct labor cost. H. Goods that cost $130,000 to manufacture according to their job cost sheets were transferred to the finished goods warehouse. I. Goods that had cost $120,000 to manufacture according to their job cost sheets were sold for $200,000. Question 1. Determine the underapplied or overapplied overhead for the year. Question 2. Prepare an income statement for the year. ( Hint: No calculations are required to determine the cost of goods sold before any adjustment for underapplied or overapplied overhead.)

Explanation / Answer

Summarisng the given data we obtain cost under applied / over applied as

Actual Factory overheads

Direct Material used Amount = 80 % of 40000 32000 Direct Labor 40000 Applied overhead cost (150 % of Direct Labor cost) = 40000 x 150% 60000 Actual Factory Overheads 64000 Under applied overheads 4000

Actual Factory overheads

Indirect Labor 18000 Indirect Material used = 20 % of 40000 8000 Factory Utility costs 14600 Depreciation on Plant and equipment = 28000 x 3/4 , Factory 21000 Insurance cost = 3000 x 80% ,Factory 2400 Total 64000

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