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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