Question

Accounting 203 In class Handout Chapter 2 Name Destin products uses a job-order costing system with two direct-cost categories (direct materials and direct labor) and one manufacturing overhead pool. Destin allocates manufacturing overhead costs using direct manufacturing labor costs. Destin provides the following information: Direct Materials Direct Labor Manufacturing Overhead Budget for Year 2018 $1,500,000 1,000,000 1,750,000 Actual Results for Year 2018 $1,450,000 980,000 1,862,000 REQUIRED: 1. Compute the predetermined (applied) overhead rate for 2018. 2. During March, the job cost record for Job 626 contains the following information: Direct Materials used: $40,000 Direct Manufacturing Labor used: 30,000 Compute the total cost of Job 626. 3. At the end of 2018, compute the under-or over-applied manufacturing overhead. 4. What is the journal entry to account for this under-or over-applied amount? 5. From a managers view point, what is better over or under applied overhead?

Answer 1

Solution: 1) 175.00% of direct labor cost Overhead rate=Estimated MOH/Estimated Direct labor cost 1750000/1000000 2) Job 626 40000 30000 Direct material Direct labor Overhead applied=52500*175% Total cost 52500 122500 3) Actual MOH MOH applied Under applied overhead 1862000 1715000 147000 Account title Cost of goods sold Manufacturing over head Debit 147000 Credit 147000 5) Overapplied. (as more cost is recovered from customer)