In December 2012, Pavelka Companys manager estimated next years total direct labor cost assuming 50 persons working

Question:

In December 2012, Pavelka Company’s manager estimated next year’s total direct labor cost assuming 50 persons working an average of 2,000 hours each at an average wage rate of $ 15 per hour. The manager also estimated the following manufacturing overhead costs for year 2013.

Indirect labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 159,600

Factory supervision . . . . . . . . . . . . . . . . . . . . . . . . 120,000

Rent on factory building . . . . . . . . . . . . . . . . . . . . 70,000

Factory utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,000

Factory insurance expired . . . . . . . . . . . . . . . . . . 34,000

Depreciation—Factory equipment . . . . . . . . . . . 240,000

Repairs expense—Factory equipment . . . . . . . . . 30,000

Factory supplies used . . . . . . . . . . . . . . . . . . . . . . 34,400

Miscellaneous production costs . . . . . . . . . . . . . . 18,000

Total estimated overhead costs . . . . . . . . . . . . . . $ 750,000

At the end of 2013, records show the company incurred $ 725,000 of actual overhead costs. It completed and sold five jobs with the following direct labor costs: Job 625, $354,000; Job 626, $330,000; Job 627, $175,000; Job 628, $420,000; and Job 629, $184,000. In addition, Job 630 is in process at the end of 2013 and had been charged $10,000 for direct labor. No jobs were in process at the end of 2012. The company’s predetermined overhead rate is based on direct labor cost.


Required

1. Determine the following.

a. Predetermined overhead rate for year 2013.

b. Total overhead cost applied to each of the six jobs during year 2013.

c. Over-or underapplied overhead at year-end 2013.

2. Assuming that any over-or underapplied overhead is not material, prepare the adjusting entry to allocate any over-or underapplied overhead to Cost of Goods Sold at the end of year 2013.


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Fundamental accounting principle

ISBN: 978-0078025587

21st edition

Authors: John J. Wild, Ken W. Shaw, Barbara Chiappetta

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