Question

Scenario:
Atchison Company uses a job costing accounting system for its production costs. The company uses a predetermined overhead rate based on direct labor-hours to apply overhead to individual jobs. The company prepared an estimate of overhead costs at different volumes for the current year as follows:
Direct labor-hours	150,000	180,000	210,000
Variable overhead costs	$1,155,000.00	$1,386,000.00	$1,617,000.00
Fixed overhead costs	712,800	712,800	712,800
Total overhead	$1,867,800.00	$2,098,800.00	$2,329,800.00
The expected volume is 180,000 direct labor-hours for the entire year. The following information is for September, when Jobs 6023 and 6024 were completed:
Inventories, September 1
Materials and supplies	$ 31,500
Work in process (Job 6023)	$162,000
Finished goods	$337,500
Purchases of materials and supplies
Materials	$445,500
Supplies	$ 49,500
Materials and supplies requisitioned for production
Job 6023	$148,500
Job 6024	123,750
Job 6025	84,150
Supplies	19,800
	$376,200
Factory direct labor-hours (DLH)
Job 6023	10,500 DLH
Job 6024	9,000 DLH
Job 6025	6,000 DLH
Labor costs
Direct labor wages (all hours @ $9)	$229,500
Indirect labor wages (12,000 hours)	51,000
Supervisory salaries	118,800
Building occupancy costs (heat, light, depreciation, etc.)
Factory facilities	$21,450
Sales and administrative offices	8,250
Factory equipment costs
Power	13,200
Repairs and maintenance	4,950
Other	8,250
	$26,400
REQUIRED
Answer the following questions:
			Answers
1. Compute the predetermined overhead rate (combined fixed and variable) to be used to apply overhead to individual jobs during the year. (Note: Regardless of your answer to requirement [1], assume that the predetermined overhead rate is $10 per direct labor-hour. Use this amount in answering requirements [2] through [5].)
2. Compute the total cost of Job 6023 when it is finished.
3. How much of factory overhead cost was applied to Job 6025 during September?
4. What total amount of overhead was applied to jobs during September?
5. Compute actual factory overhead incurred during September.
6. At the end of the year, Atchison Company had the following account balances:
Overapplied Overhead	$ 3,300
Cost of Goods Sold	3,234,000
Work-in-Process Inventory	125,400
Finished Goods Inventory	270,600
How would you recommend treating the over applied overhead, assuming that it is not material? Show the new account balances in the following table:
Overapplied Overhead
Cost of Goods Sold
Work-in-Process Inventory
Finished Goods Inventory

Answer 1

		Answers
1.	Predetermined overhead rate	$ 11.66 per direct labor hour
2.	Cost of Job 6023	$ 510,000
3.	Factory overhead applied to Job 6025	$ 60,000
4.	Total amount of overheads applied to jobs in September	$ 255,000
5.	Actual overhead incurred during September	$ 237,450

6.

Account Titles	Debit	Credit
	$	$
Factory Overhead	3,300
Cost of Goods Sold ( 3,234,000 / 3,630,000 * 3,300)		2,940
Work in Process Inventory ( 125,400 / 3,630,000 * 3,300)		114
Finished Goods Inventory ( 270,600 / 3,630,000 * 3,300)		246

Computations :

1. Predetermined overhead rate = Budgeted Total Overhead / Expected Volume of DLH = $ 2,098,800 / 180,000 DLH = $ 11.66 per DLH

2. Total cost of Job 6023 : $ 510,000

Beginning Work in Process	$ 162,000
Direct materials used during September	148,500
Direct labor used during September ( 10,500 @ $ 9)	94,500
Factory overhead applied ( 10,500 @ $ 10)	105,000
Total cost of Job 2023	$ 510,000

3. Factory overhead applied to job 6025 : 6,000 DLH @ $ 10 = $ 60,000.

4. Total amount of overheads applied to jobs during September : ( 10,500 + 9,000 + 6,000) DLH x $ 10 = $ 255,000.

5. Actual overheads incurred during September : $ 237,450

Supplies	$ 19,800
Indirect labor	51,000
Supervisory salaries	118,800
Building occupancy costs	21,450
Factory equipment costs	26,400
Total overhead incurred	$ 237,450