Question: Simple Plant manufactures DNA test strips Manufacturing overhead is applied

Simple Plant manufactures DNA test strips. Manufacturing overhead is applied to units produced using direct labor dollars as the allocation base. The overhead rate is calculated prior to the beginning of the fiscal year that runs January 1 to December 31. Simple Plant has one manufacturing employee, J. Kusic, and one overhead expense besides indirect labor, property taxes. J. Kusic’s salary and fringe benefits for next year are forecast to be $ 50,000. Kusic is expected to work 2,000 hours at a cost of $ 25 per hour ($ 50,000/ 2,000). Eighty percent of Kusic’s time is budgeted to be direct labor, and the remainder is budgeted to be indirect labor. Property taxes are projected to be $ 110,000. There was no beginning balance of work in process on January 1.

a. Calculate Simple Plant’s overhead rate for next year.
b. On January 2, the first working day of the new fiscal year, Kusic works eight hours (five hours on manufacturing test strips and three hours waiting for raw materials to arrive). Each day Simple Plant posts all entries (transactions) to the accounts. What are the balances in the Overhead account and the Work- in- Process account at the close of business on January 2?
c. At the end of the year, Kusic’s salary and benefits are $ 50,000, with $ 44,000 of the total charged to test strips manufactured. Kusic worked 2,000 hours during the year. Property taxes paid during the year amounted to $ 103,000. What, if any, is the balance in the overhead account before an adjusting entry is made to transfer the balance to other accounts?

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  • CreatedDecember 15, 2014
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