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	$	1,050,000			$	1,260,000			$	1,470,000
Fixed overhead costs		684,000				684,000				684,000
Total overhead	$	1,734,000			$	1,944,000			$	2,154,000

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	$	32,500
Work‐in‐process (Job 6023)	$	164,000
Finished goods	$	328,000
Purchases of materials and supplies
Materials	$	398,000
Supplies	$	40,000
Materials and supplies requisitioned for production
Job 6023	$	135,000
Job 6024		120,000
Job 6025		72,000
Supplies		20,000
	$	347,000

Factory direct labor-hours (DLH)
Job 6023	12,000 DLH
Job 6024	9,500 DLH
Job 6025	6,000 DLH

  

Labor costs
Direct labor wages (all hours @ $8)	$	220,000
Indirect labor wages (11,000 hours)		46,200
Supervisory salaries		113,000
Building occupancy costs (heat, light, depreciation, etc.)
Factory facilities	$	19,000
Sales and administrative offices		8,000
Factory equipment costs
Power	$	11,000
Repairs and maintenance		4,000
Other		7,000
	$	22,000

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 $8 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	$	4,000
Cost of goods sold		2,850,000
Work-in-process inventory		119,000
Finished goods inventory		241,000

  

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

Answer 1

a. Predetermined overhead rate = Estimated overhead costs/Estimated direct labor hours = $1944000/180000 = $10.80 per direct labor hour

b.

	Job 6023
Balance, March 1	164000
Direct materials	135000
Direct labor (12000 x $8)	96000
Factory overheads (12000 x $8)	96000
Total cost $	491000

c. Factory overhead cost applied to Job 6025 during March: 6000 DLH x $8 = $48000

d. Total amount of overhead applied to jobs during March: (12000 + 9500 + 6000) DLH x $8 = 27500 DLH x $8 = $220000

e. Actual factory overhead incurred during March: $220200

Supplies	20000
Indirect labor wages	46200
Supervisory salaries	113000
Factory facilities	19000
Factory equipment costs	22000
Total factory overhead incurred $	220200

f.

	New account balances
Cost of goods sold ($2850000 - $4000)	2846000
Work-in-process inventory	119000
Finished goods inventory	241000

Since the over-applied overhead is not material, the same is adjusted to the cost of goods sold.