Question

5. (10 POINTS) Starstream Studios, Inc. uses a job order costing system with a predetermined overhead rate that is based on machine hours. At the beginning of the period fixed manufacturing overhead was estimated to be $210,000. Variable estimated manufacturing overhead was estimated to be S1 per machine hour and 100,000 machine hours were estimated to be incurred during the period. a) What is the total estimated overhead cost for the period? 210000 + 1 X 100 DDO 31000 3.1 b) What is the predetermined overhead rate? c) Job #4 was started and completed during the year. 5 machine hours were used on the job. Additionally, direct materials used for the job were $500 and direct labor incurred on the job was $400. What is the total manufacturing cost of job #4? d) During the entire year, the company incurred a total of 110,000 machine hours for all jobs. If the actual manufacturing overhead incurred for the period was $300,000, what is the journal entry to close out the amount that was underapplied or overapplied (simple method) at the end of the year? e) Would the journal entry in letter d above impact the company's net income increase, decrease or no effect)? If so, by how much?

Answer 1

Star stream Studios
Answer a
Plant wide Manufacturing overhead rate	Total	Note
Total Machine Hours	100,000.00	A
Variable OH rate	1.00	B
Total Variable OH	100,000.00	C=A*B
Add: Fixed overhead	210,000.00	D
Total Manufacturing overhead	310,000.00	E=C+D
Answer b
Plant wide Manufacturing overhead rate	3.10	F=E/A
Answer c
OH allocated to Job 4	Total
Machine hours used	5.00	G
Plant wide Manufacturing overhead rate	3.10	See F
OH allocated	15.50	H=G*F
Total manufacturing cost	Job 4
Direct Materials	500.00
Direct Labor	400.00
OH allocated	15.50
Total manufacturing cost	915.50
Answer d
Over applied Overhead	Total
Machine hours used	110,000.00	I
Plant wide Manufacturing overhead rate	3.10	See F
OH Applied	341,000.00	J=I*F
Actual Overhead	300,000.00	K
Over applied Overhead	41,000.00	L=J-K
Journal Entry
Account	Debit $	Credit $
Manufacturing overhead	41,000.00
Cost of goods sold		41,000.00
Answer e
As Cost of goods sold is credited so expense has decreased so net income will increase.