ABC Inc. is a small New England company that manufactures custom clocks. It uses normal costing system that applies factory overhead on the basis of direct labor-hours. Factory overhead for the past years were listed below 

along with the direct labor hours spent:

 

Factory Overhead	Direct Labor Hours
549,750	35,000
505,400	36,000
529,800	32,000
592,725	36,500
573,025	38,500

Management assessed that 31,700 direct labor-hours is the normal capacity for the year. Before they started their April production, some P 10,000 of both wood fasteners and mahogany blanks were still unused but clocks worth 15,780 are ready to be finished. Since the products were on demand last quarter, all finished clocks were sold before April. These transactions were recorded during April:

• April insurance cost for the manufacturing property and equipment was P1,495. The premium had been paid in January.
• Recorded P1,025 depreciation on an administrative asset.
• Purchased 21 pounds of high-grade wood fasteners on account at P15 per pound (indirect material).
• Paid factory utility bill, P6,510 in cash.
• Incurred and paid payroll costs of P80,300. Of this amount, P64,000 were for direct labor personnel who earned P20 per hour on average.
• Incurred and paid other factory overhead costs, P5,770.
• Purchased 2,100 unfinished mahogany blanks on account at P11 per blank.
• Requisitioned 1,495 mahogany blanks and 13 pounds of fasteners for production.
• Incurred miscellaneous selling and administrative expenses, P5,660.
• Incurred P3,505 depreciation on manufacturing equipment for April.
• Paid advertising expenses in cash, P2,350.
• Applied factory overhead to production on the basis of direct labor-hours.
• Made sales on account in August, P96,450. Cost of goods sold for the period is 84,500.
• Work-in Process at the end of April, before any adjustments for over or under applied overhead was P56,355.

REQUIRED:

1. Compute for the predetermined overhead rate using high-low method.
2. Journalize the entries for April.
3. Compute for the over- or underapplied overhead and make the necessary adjusting journal entry if management assessed that it is material.
4. Make an income statement for the month of April for ABC Inc.

Answer rating: 100% (QA)

To compute the predetermined overhead rate using the highlow method we need to find the variable cost per direct labor hour and the fixed factory overhead cost First lets identify the highest and lowe... View the full answer