Predetermined Factory Overhead Rate

Spring Street Engine Shop uses a job order cost system to determine the cost of performing engine repair work. Estimated costs and expenses for the coming period are as follows:

Engine parts		$1,228,900
Shop direct labor		897,000
Shop and repair equipment depreciation		38,400
Shop supervisor salaries		106,700
Shop property tax		19,400
Shop supplies		14,900
Advertising expense		24,600
Administrative office salaries		105,700
Administrative office depreciation expense		13,500
	Total costs and expenses	$2,449,100

The average shop direct labor rate is $23 per hour.

Determine the predetermined shop overhead rate per direct labor hour. Round the answer to nearest whole cent. $ per direct labor hour

The following events took place for Chi-Lite Inc. during June, the first month of operations as a producer of road bikes:

	Purchased $403,440 of materials.
	Used $340,060 of direct materials in production.
	Incurred $294,500 of direct labor wages.
	Applied factory overhead at a rate of 79% of direct labor cost.
	Transferred $819,120 of work in process to finished goods.
	Sold goods with a cost of $781,630.
	Sold goods for $1,402,470.
	Incurred $315,200 of selling expenses.
	Incurred $127,070 of administrative expenses.

	Required:
	a. Prepare the June income statement for Chi-Lite. Assume that Chi-Lite uses the perpetual inventory method. Refer to the list of Labels and Amount Descriptions provided for the exact wording of the answer choices for text entries. Colons (:) will fill in where needed.
	b. Determine the inventory balances at the end of the first month of operations.

a. Prepare the June income statement for Chi-Lite. Assume that Chi-Lite uses the perpetual inventory method. Refer to the list of Labels and Amount Descriptions provided for the exact wording of the answer choices for text entries. Colons (:) will fill in where needed.

Chi-Lite Inc.

Income Statement

1
2
3
4
5
6
7
8

The following events took place for Chi-Lite Inc. during June, the first month of operations as a producer of road bikes:

	Purchased $403,440 of materials.
	Used $340,060 of direct materials in production.
	Incurred $294,500 of direct labor wages.
	Applied factory overhead at a rate of 79% of direct labor cost.
	Transferred $819,120 of work in process to finished goods.
	Sold goods with a cost of $781,630.
	Sold goods for $1,402,470.
	Incurred $315,200 of selling expenses.
	Incurred $127,070 of administrative expenses.

	Required:
	a. Prepare the June income statement for Chi-Lite. Assume that Chi-Lite uses the perpetual inventory method. Refer to the list of Labels and Amount Descriptions provided for the exact wording of the answer choices for text entries. Colons (:) will fill in where needed.
	b. Determine the inventory balances at the end of the first month of operations.

X

Income Statement

a. Prepare the June income statement for Chi-Lite. Assume that Chi-Lite uses the perpetual inventory method. Refer to the list of Labels and Amount Descriptions provided for the exact wording of the answer choices for text entries. Colons (:) will fill in where needed.

Chi-Lite Inc.

Income Statement

1
2
3
4
5
6
7
8

X

Inventory Balances

b. Determine the inventory balances at the end of the first month of operations.

Materials inventory, June 30
Work in process inventory, June 30
Finished goods inventory, June 30

The law firm of Furlan and Benson accumulates costs associated with individual cases, using a job order cost system. The following transactions occurred during July:

Jul.	3	Charged 180 hours of professional (lawyer) time to the Obsidian Co. breech of contract suit to prepare for the trial, at a rate of $145 per hour.
	10	Reimbursed travel costs to employees for depositions related to the Obsidian case, $12,700.
	14	Charged 250 hours of professional time for the Obsidian trial at a rate of $185 per hour.
	18	Received invoice from consultants Wadsley and Harden for $29,150 for expert testimony related to the Obsidian trial.
	27	Applied office overhead at a rate of $60 per professional hour charged to the Obsidian case.
	31	Paid administrative and support salaries of $28,000 for the month.
	31	Used office supplies for the month, $4,250.
	31	Paid professional salaries of $72,350 for the month.
	31	Billed Obsidian $196,000 for successful defense of the case.

Required:

a.	Provide the journal entries for each of these transactions. Refer to the Chart of Accounts for exact wording of account titles.
b.	How much office overhead is over- or underapplied?
c.	Determine the gross profit on the Obsidian case, assuming that over- or underapplied office overhead is closed monthly to cost of services.

CHART OF ACCOUNTS

Furlan and Benson

General Ledger

	ASSETS
110	Cash
121	Accounts Receivable
125	Notes Receivable
126	Interest Receivable
132	Work in Process
133	Office Overhead
141	Supplies
142	Prepaid Insurance
143	Prepaid Expenses
191	Office Equipment
192	Accumulated Depreciation-Office Equipment

	LIABILITIES
210	Accounts Payable
221	Utilities Payable
231	Notes Payable
236	Interest Payable
241	Lease Payable
251	Salaries Payable
252	Consultant Fees Payable

	EQUITY
311	Common Stock
340	Retained Earnings
351	Dividends
390	Income Summary

	REVENUE
410	Fees Earned
610	Interest Revenue

	EXPENSES
510	Cost of Services
520	Salaries Expense
532	Insurance Expense
533	Utilities Expense
534	Office Supplies Expense
540	Administrative Expenses
560	Depreciation Expense-Office Equipment
590	Miscellaneous Expense
710	Interest Expense

a. Provide the journal entries for each of these transactions. Refer to the Chart of Accounts for exact wording of account titles.

PAGE 10

JOURNAL

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

b. How much office overhead is over- or underapplied?

c. Determine the gross profit on the Obsidian case, assuming that over- or underapplied office overhead is closed monthly to cost of services.