Analysis of Overhead Using a Predetermined Rate
UCD Company uses a job costing accounting system for its production costs. A predetermined overhead rate based on direct labor-hours is used to apply overhead to individual jobs. An estimate of overhead costs at different volumes was prepared for the current year as follows:
Direct labor-hours
|
30,000
|
40,000
|
50,000
|
Variable overhead costs
|
$360,000
|
$480,000
|
$ 600,000
|
Fixed overhead costs
|
500,000
|
500,000
|
500,000
|
Total overhead
|
$860,000
|
$980,000
|
$1,100,000
|
The expected volume is 40,000 direct labor-hours for the entire year. The following information is for October, when jobs 1011 and 1015 were completed.
Inventories, October 1
|
|
Raw materials and supplies
|
$ 42,000
|
Work in process (Job 1011)
|
91,300
|
Finished goods
|
227,900
|
Purchases of raw materials and supplies
|
|
Raw materials
|
629,000
|
Supplies
|
79,300
|
Materials and supplies requisitioned for production
|
|
Job 1011
|
281,000
|
Job 1015
|
234,500
|
Job 1017
|
47,200
|
Supplies
|
76,700
|
|
$639,400
|
Machine-hours (MH)
|
|
Job 1011
|
6,200 MH
|
Job 1015
|
6,100 MH
|
Job 1017
|
3,700 MH
|
Direct labor-hours (DLH)
|
|
Job 1011
|
14,000 DLH
|
Job 1015
|
6,100 DLH
|
Job 1017
|
3,700 DLH
|
Labor costs
|
|
Direct labor wages (all hours @ $12)
|
$285,600
|
Indirect labor wages (12,000 hours)
|
63,000
|
Supervisory salaries
|
128,000
|
Building occupancy costs (heat, light, depreciation, etc.)
|
|
Factory facilities
|
36,900
|
Sales and administrative offices
|
14,200
|
Factory equipment costs
|
|
Power
|
21,800
|
Repairs and maintenance
|
8,200
|
Other
|
9,900
|
|
$ 39,900
|
Required
Answer the following questions.
a. Compute the predetermined overhead rate (combined fixed and variable) to be used to apply overhead to individual jobs during the year.
b. Compute the total cost of Job 1011 when it is finished.
c. How much of factory overhead cost was applied to Job 1017 during October?
d. What total amount of overhead was applied to jobs during October?
e. Compute actual factory overhead incurred during October.
f. At the end of the year, UCD Company had the following account balances:
|
Balance
|
Underapplied Overhead
|
$ 3,000,000
|
Cost of Goods Sold
|
28,000,000
|
Work-in-Process Inventory
|
4,000,000
|
Finished Goods Inventory
|
8,000,000
|
How would you recommend treating the Underapplied Overhead? Show the effect on the account balances in the following table.
Overapplied Overhead
|
_________
|
Cost of Goods Sold
|
_________
|
Work-in-Process Inventory
|
_________
|
Finished Goods Inventory
|
_________
|