Problem 2:

Overhead Application using a Predetermined Overhead Rate

Tiana Shar, the controller for Bondi Furniture Company, is in the process of analysing the

overhead costs for the month of November. She has gathered the following date for the month.

Labour

Direct-labour hours:

Job 77

3,500

Job 78

3,000

Job 79

2,000

Labour costs:

Direct-labour wages

$ 204, 000

Indirect-labour wages

15, 000

Supervisory salaries

6, 000

Material

Inventory, November 1:

Raw material and supplies

$ 10, 500

Work in process (job 77)

54, 000

Finished goods

112, 500

Purchases of raw materials and supplies:

Raw material

$135,000

Supplies (indirect material)

15, 000

Direct material and supplies requisitioned for production:

Job 77

$ 45, 000

Job 78

37, 500

Job 79

25, 500

Supplies (indirect material)

12, 000

Total

$120, 000

Other

Building occupancy costs (heat, light, depreciation etc.)

Factory facilities

$ 6, 400

Sales offices

1, 600

Administrative offices

1, 000

Total

$9, 000

Production equipment costs:

Power

$ 4, 100

Repairs and maintenance

1, 500

Depreciation

1, 500

Other

1, 000

Total

$

8, 100

Problem solving assignment

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The firm's job order costing system uses direct-labour-hours (measured at practical capacity) as

the cost driver for overhead application. In December of the preceding year, Shar had prepared

the following budgeted for direct-labour and manufacturing overhead costs for the current year.

The plant is theoretically capable of operating at 150, 000 direct-labour hours per year. However,

Shar estimates that the practical capacity is 120,000 hours in a typical year.

Manufacturing overhead

Direct-labour hours

Variable

Fixed

100, 000

$ 325, 000

$ 216, 000

120, 000

390, 000

216, 000

140, 000

455, 000

216, 000

During November the following jobs were completed:

Job 77

Side chairs

Job 78

End tables

Required:

Assist Shar by making the following calculations.

1. Calculate the predetermined overhead rate for the current year.

2. Calculate the total cost of job 77.

3. Computer the amount of manufacturing overhead applied to job 79 during November.

4. What was the total amount of manufacturing overhead applied during November?

5. Compute the actual manufacturing overhead incurred during November.

6. Calculate the overapplied or underappied for November