Superior Auto Body & Paint Shop uses a normal costing system. Superior calculates a predetermined overhead rate at the beginning of every year and uses this rate to apply overhead to all of its jobs. For the previous year, Superior’s overhead rate was $2 per labor dollar.

Superior’s budgeted labor costs for the previous year were $250,000, and budgeted fixed overhead was $375,000.

Required:

a. Calculate the total budgeted overhead for the previous year.

b. What was the budgeted variable overhead for the previous year?

c. Calculate the budgeted variable overhead rate for the previous year.

d. Suppose actual total overhead for the previous year was $630,000, actual direct labor cost was $300,000, and actual fixed overhead was $475,000. Calculate the total overhead applied in the previous year.

e. Calculate the amount by which total overhead was under- or overapplied.

f. Calculate the amount by which the fixed overhead was under- or overapplied.

g. Calculate the amount by which variable overhead was under- or overapplied.

h. At the end of the previous year, the following two jobs were the only jobs still in process:

Calculate the balance in the work-in-process account at the end of the previous year.
i. Suppose Superior decides to write off the entire amount of under- or overapplied overhead to cost of goods sold. What would be the adjusted balance in the cost of goods sold account? Assume unadjusted cost of goods sold is $800,000.
j. At the end of the previous year, the value of Superior’s finished goods inventory was $200,000. Assume Superior prorates any under- or overapplied overhead to work-in-process, finished goods, and cost of goods sold based on the balances in these accounts. Compute the adjusted ending balances for work in process, finished goods, and cost of goods sold.
k. By how much will Superior’s income (before taxes) differ between the write-off (part i) and proration (part j)approaches?

Job 125 Job 178 Direct materials 16,000 $18,000 $20,000 $13.000 Direct labor