Lund products, Inc., uses a predetermined overhead rate in its production, assembly, and testing departments. One rate is used for he entire company; it is based on machine hours. The rate is determined by analyzing data from the previous year to determine the percentage change in costs. Thus this year's overhead rate will be based on the percentage change multiplied by last years' costs. Lise Jensen is about to compute the rate for this year using the following data:

Last year's cost

Machine hours ...... 41,800

Overhead costs

Indirect materials .... $57,850

Indirect labor ...... 25,440

Supervision ...... 41,580

Utilities ......... 11,280

Labor-related costs .... 9,020

Depreciation, factory ... 10,780

Depreciation machinery ...27,240

Property taxes ....... 2,880

Insurance ........ 1,920

Miscellaneous overhead ... 4,840

Total overhead .... $192,830

This year the cost of indirect material is expected to increase by 30 percent over the previous year. The cost of indirect labor, utilities, machinery depreciation, property taxes, and insurance is expected to increase by 20 percent over the previous year. All other expenses are expected to increase by 10 percent over the previous year. Machine hours for this year are estimated at 45,980.

Required

1. Compute the projected cost and the overhead rate for this year using the information about expected cost increases.

2. During this year, Lund Products completed the following jobs using the machine hours shown:

Determine the amount overhead applied to each job. What was the total overhead applied during this year?
3. Actual overhead costs for this year were $234,485. Was overhead under-applied or over-applied this year? By how much? Should the cost of Goods Sold account be increased or decreased to reflect actual overhead costs?
4. At what point during this year was the overhead rate computed? When was it applied? Finally, when was under-applied overhead determined and the Cost of Goods Sold account adjusted to reflect actualcosts?

Transcribed Image Text:

Job No. H-142 H-164 H-175 Machine Hours 7,840 5,260 8,100 Job No H-201 Н-218 H-304 Machine Hours 10,680 12,310 2,460