22) Adams Manufacturing allocates overhead to production on the basis of direct

Question

22) Adams Manufacturing allocates overhead to production on the basis of direct labor costs. At the beginning of the year, Adams estimated total overhead of S During the year Adams incurred $418,000 in material labor costs. The amount of overhead 396,000; materials of $410,000 and direct labor of $220,000 applied to jobs during the year is$424,450. 23) Portside Watercraft uses a job order costing system. During one month Portside purchased materials on credit; issued materials to production of $164,000 of which $24,000 were indirect. Portside incurred a factory payroll of s95,000, of which $25,000 was overhead rate of 170% of direct labor cost. The journal entry to record the issuance of materials to production is Debit Work in Process Inventory $140,000, debit Factory Overhead $24,000; credit Raw Materials Inventory $184,000. indirect labor. Portside uses a predetermined 23) 24) Morris Company applies overhead based on direct labor costs. For the current year, Morris Company estimated total overhead costs to be $400,000, and direct labor costs to be $2,000,000. Actual overhead costs for the year totaled $380,000, and actual direct labor costs totaled $1,800,000. At year-end, the balance in the Factory Overhead account is a $20,000 Credit balance. 24) 25) At the current year-end, Sample Company found that its overhead was underapplied by S2,500, and this amount was not considered material. Based on this information, Sample should Close the $2,500 to Cost of Goods Manufactured. 25)

Explanation / Answer

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Overhead absorption rate

= Budgeted overhead / Budgeted Base of overhead allocation

= Budgeted overhead / Budgeted Labor costs

= $396,000 / $220,000

= 1.8 times of labor costs

So, overhead that should be allocated

= Actual labor costs x Overhead allocation rate

= $224,000 x 1.80

= $403,200

Over absorbed overhead

= Overhead applied – Overhead that should be applied

= $424,450 - $403,200

= $21,250

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