In December 2008, Bigby Companys manager estimated next years total direct labor cost assuming 100 persons working

Question:

In December 2008, Bigby Company’s manager estimated next year’s total direct labor cost assuming 100 persons working an average of 2,000 hours each at an average wage rate of $15 per hour. The manager also estimated the following manufacturing overhead costs for year 2009.

Indirect labor . . . . . . . . . . . . . . . . . . . . . . . . . $ 319,200

Factory supervision . . . . . . . . . . . . . . . . . . . . . 240,000

Rent on factory building . . . . . . . . . . . . . . . . . 140,000

Factory utilities . . . . . . . . . . . . . . . . . . . . . . . . 88,000

Factory insurance expired . . . . . . . . . . . . . . . . 68,000

Depreciation—Factory equipment . . . . . . . . . . 480,000

Repairs expense—Factory equipment . . . . . . . . 60,000

Factory supplies used . . . . . . . . . . . . . . . . . . . 68,800

Miscellaneous production costs . . . . . . . . . . . . 36,000

Total estimated overhead costs . . . . . . . . . . . . $1,500,000

At the end of 2009, records show the company incurred $1,450,000 of actual overhead costs. It completed and sold five jobs with the following direct labor costs: Job 625, $708,000; Job 626, $660,000; Job 627, $350,000; Job 628, $840,000; and Job 629, $368,000. In addition, Job 630 is in process at the end of 2009 and had been charged $20,000 for direct labor. No jobs were in process at the end of 2008. The company’s predetermined overhead rate is based on direct labor cost.


Required

1. Determine the following.

a. Predetermined overhead rate for year 2009.

b. Total overhead cost applied to each of the six jobs during year 2009.

c. Over- or underapplied overhead at year-end 2009.

2. Assuming that any over- or underapplied overhead is not material, prepare the adjusting entry to allocate any over- or underapplied overhead to Cost of Goods Sold at the end of year 2009.


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Managerial Accounting

ISBN: 978-0073379586

2010 Edition

Authors: John J. Wild, Ken W. Shaw

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