Problem 7-53 (Algo) Analysis of Overhead Using a Predetermined Rate (LO 7-3)

Script Company uses a job costing accounting system for its production costs. A predetermined overhead rate based on direct labor-hours is used to apply overhead to individual jobs. An estimate of overhead costs at different volumes was prepared for the current year as follows.

Direct labor-hours		31,600			41,700			51,400
Variable overhead costs	$	442,400		$	583,800		$	719,600
Fixed overhead costs		501,700			501,700			501,700
Total overhead	$	944,100		$	1,085,500		$	1,221,300

The expected volume is 41,700 direct labor-hours for the entire year. The following information is for October, when jobs 1011 and 1015 were completed.

Inventories, October 1
Raw materials and supplies	$	42,000
Work in process (Job 1011)		92,300
Finished goods		228,700
Purchases of raw materials and supplies
Raw materials		629,400
Supplies		80,900
Materials and supplies requisitioned for production
Job 1011		280,700
Job 1015		232,900
Job 1017		45,600
Supplies		76,100
	$	635,300
Machine-hours (MH)
Job 1011		6,206 MH
Job 1015		6,104 MH
Job 1017		3,706 MH
Direct labor-hours (DLH)
Job 1011		14,060 DLH
Job 1015		6,140 DLH
Job 1017		3,750 DLH
Labor costs
Direct labor wages (all hours @ $12)	$	287,400
Indirect labor wages (12,800 hours)		67,200
Supervisory salaries		126,500
Building occupancy costs (heat, light, depreciation, etc.)
Factory facilities	$	35,700
Sales and administrative offices		14,200
Factory equipment costs
Power	$	21,720
Repairs and maintenance		8,030
Other		9,750
	$	39,500

Required:

a. Compute the predetermined overhead rate (combined fixed and variable) to be used to apply overhead to individual jobs during the year.

(Note: Regardless of your answer to requirement [a], assume that the predetermined overhead rate is $26.53 per direct labor-hour. Use this amount in answering requirements [b] through [e].)

b. Compute the total cost of Job 1011 when it is finished.

c. How much of factory overhead cost was applied to Job 1017 during October?

d. What total amount of overhead was applied to jobs during October?

e. Compute actual factory overhead incurred during October.

f. At the end of the year, Script Company had the following account balances:

		Balance
Underapplied overhead	$	6,909,000
Cost of goods sold		65,800,000
Work-in-process inventory		9,400,000
Finished goods inventory		18,800,000

Show the Underapplied Overhead effect on the account balances in the following table.