Question
Graphic Designs operates a job-order costing system and applies overhead to jobs on the basis of direct materials used in production. Its predetermined overhead was
Graphic Designs operates a job-order costing system and applies overhead to jobs on the basis of direct materials used in production. Its predetermined overhead was based on a cost formula that estimated $900,000 of manufacturing overhead for an estimated allocation base of $600,000 direct material dollars to be used in production. The company has provided the following data for the just completed year:
Purchase of raw materials
$530,000
Direct labour cost
$90,000
Manufacturing overhead costs:
Indirect labour
$160,000
Property taxes
$48,000
Depreciation of equipment
$250,000
Maintenance
$95,000
Insurance
$7,000
Rent, building
$170,000
Beginning
Ending
Raw Materials
$30,000
$60,000
Work in Process
$150,000
$70,000
Finished Goods
$260,000
$400,000
Required:
- Calculate the predetermined overhead rate for the year. (1 mark)
- Calculate the direct materials used in production. Assume all raw materials are used in production as direct materials. (1 mark)
- Calculate the amount of underapplied or overapplied overhead for the year. Specify whether the amount is underapplied or overapplied overhead. (1 mark)
- What options are available for disposing of underapplied or overapplied overhead? (1 mark)
- Assume that the $70,000 ending balance in Work in Process includes $24,000 of direct materials. Given this assumption, determine the direct labour cost missing below. (1 mark)
Direct materials
$24,000
Direct labour
?
Manufacturing overhead
?
Work in process inventory
$70,000
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