Case 1

Best Pty Ltd applies overhead on the basis of direct labour costs. The company estimates annual overhead costs will be $760,000 and annual direct labour costs will be $950,000. During February, Best Pty Ltd works on two jobs: A16 and B17. Summary Data concerning these jobs are as follows.

Manufacturing Costs Incurred

Purchased $54,000 of raw materials on account.

Factory Labour $76,000 plus $4,000 employer payroll taxes.

Manufacturing overhead exclusive of indirect materials and indirect labour $59,800.

Assignment of Costs

Direct materials: Job A16 $27,000 and Job B17 $21,000

Indirect materials: $3,000

Direct Labour: Job A16 $52,000 and Job B17 $26,000

Indirect Labour: $2,000

The company completed Job A16 and sold it on account for $150,000. Job B17 was only partially completed.

Instructions

a. Compute the predetermined overhead rate (5 Marks).

b. Journalize the February transactions and explain the meaning of each journals relate to the costing system (5 Marks).

c. What was the amount of under- or overlapped manufacturing overhead? Explain what the meaning of under or overlapped manufacturing overhead (5 Marks)