Auto Renovators2 is a leading classic car restoration company in Australia. The company has been well-known for renovating thousands of classic cars in Australia according to customers’ orders. In February, the company has worked on five jobs, numbered 301 to 305. Direct materials used, direct labour incurred in February were as shown in the following table.

Order number	Direct material ($)	Direct labour ($)
	301	1090	1610
	302	770	1410
	303	920	1010
	304	1070	1910
	305	230	610

Manufacturing overheads during February included indirect material ($ 1100), indirect labour ($ 2750), rent ($ 2000), depreciation ($ 1300), insurance ($ 250), utilities ($ 800), and other manufacturing costs ($ 400).

At the beginning of the month, management anticipated that overhead cost would be $ 9100 and total direct labour would amount to $ 6500. Overhead is allocated on the basis of direct labour dollars.

Jobs 301 to 303 were finished during the month; Jobs 304 and 305 is still in process. Jobs 301 to 303 were picked up and paid by customers for $ 6100, $ 4800, $ 3700.

Required      

1.   Determine the company’s predetermined overhead rate.    
       
2. Prepare the journal entries to reflect the following: the incurrence of materials, labour, and actual overhead costs; the allocation of overhead; and the transfer of job costs to finished goods inventory and cost of goods sold (Note: Use summary entries where appropriate by combining individual job data).
       
3.   In your own words, describe the two different approaches to closing overapplied or underapplied overhead at the end of the month. How do you choose an appropriate method? Calculate the amount of overapplied or underapplied overhead to be closed and prepare an appropriate journal entry.

Answer rating: 100% (QA)

1 Pre determined overhead rate 91006500 14 2 Journal Entries For incurrance a Dr Direct Material 408... View the full answer