Question

Kansas 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	$	1,200,000			$	1,440,000			$	1,680,000
Fixed overhead costs		594,000				594,000				594,000
Total overhead	$	1,794,000			$	2,034,000			$	2,274,000

The expected volume is 180,000 direct labor-hours for the entire year. The following information is for March, when Jobs 6023 and 6024 were completed.

Inventories, March 1
Materials and supplies	$	30,500
Work‐in‐process (Job 6023)	$	163,000
Finished goods	$	341,000
Purchases of materials and supplies
Materials	$	409,000
Supplies	$	46,000
Materials and supplies requisitioned for production
Job 6023	$	132,000
Job 6024		107,500
Job 6025		74,000
Supplies		19,000
	$	332,500

Factory direct labor-hours (DLH)
Job 6023	10,000 DLH
Job 6024	9,000 DLH
Job 6025	6,000 DLH

  

Labor costs
Direct labor wages (all hours @ $7)	$	175,000
Indirect labor wages (11,000 hours)		52,800
Supervisory salaries		104,000
Building occupancy costs (heat, light, depreciation, etc.)
Factory facilities	$	19,500
Sales and administrative offices		8,000
Factory equipment costs
Power	$	14,000
Repairs and maintenance		5,000
Other		6,500
	$	25,500

Required:

a. 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 [a], assume that the predetermined overhead rate is $9 per direct labor-hour. Use this amount in answering requirements [b] through [e].)

b. Compute the total cost of Job 6023 when it is finished.

c. How much of factory overhead cost was applied to Job 6025 during March?

d. What total amount of overhead was applied to jobs during March?

e. Compute actual factory overhead incurred during March.

f. At the end of the year, Kansas Company had the following account balances:

  

Overapplied overhead	$	1,000
Cost of goods sold		2,990,000
Work-in-process inventory		121,000
Finished goods inventory		245,000

  

Assuming that the overapplied overhead is not material, show the new account balances in the following table.

Answer 1

Solution a:
Computation of Predetermined Overhead rate
Total overhead	2034000
/ Direct labor hours	180000
Predetermined overhead rate	11.30
Solution b:
Computation of Total Cost of Job 6023
Work in process, March 1	163000
Add: Materials requisitioned	132000
Add: Direct labor(10000*$7)	70000
Add: Overehead cost (10000*$9)	90000
Total cost of Job 6023	455000
Solution c:
Factory Overhead cost applied to Job 6025
Direct labor hours of Job 6025	6000
*Predetermined Overhead rate	9
Factory overhead cost applied to Job 6025	54000
Solution d:
Total overhead applied to Jobs during March
Total Direct labor hours (10000+9000+6000)	25000
*Predetermined Overhead rate	9
Factory overhead cost applied to jobs	225000
Solution e:
Computation of actual factory overhead incurred
Supplies	19000
Indirect labor wages	52800
Supervisory salaries	104000
Factory facilities	19500
Factory Equipment costs	25500
Total actual factory overhead incurred	220800
Solution f:
New Account Balances
Overapplied Overhead	0
Cost of goods sold ($3020000 -$4000)*	2989000
Work in process inventory	121000
Finished goods inventory	245000
*as overapplied overhead is not material, so adjusted with only cost of goods sold