EXERCISE 2

Iowa Company uses a job-order costing system. Iowa computes its predetermined overhead rate based on direct labor hours. For the upcoming year, the Company has estimated that total manufacturing overhead cost will be $343,750 for the year. The Company also estimates it will work 12,500 direct labor hours during the year. In addition, the Company actually works 11,900 direct labor hours and incurs $325,900 in total manufacturing cost.

During the year, the company completed Job 52X. Actual cost and unit data for Job 52X is below:

Required:

Compute the predetermined overhead rate used to apply overhead to production for Indiana Company. Be specific as to what the rate represents.

Determine the amount of manufacturing overhead to apply to Job 52X and record the journal entry to apply manufacturing overhead to production using the amount you have calculated.

JOURNAL

For the year, is manufacturing overhead for the year over- or underapplied and by how much? Complete this line: Manufacturing overhead is ___________-applied by $

	Job 52X
Units of product on the job	300
Direct labor hours worked	600
Direct material cost	$65,500
Direct labor cost	10,700

Account Descriptions	Debit	Credit

4. Compute the total cost and per unit cost of Job 52X. Total Cost of Job 52X

7

Per unit cost of Job 52X