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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 $90,000 Direct labour cost Manufacturing overhead costs: Indirect labour Property taxes Depreciation of equipment Maintenance $160,000 $48,000 $250,000 $95,000 $7,000 $170,000 Insurance Rent, building Ending Raw Materials Beginning $30,000 $150,000 $260,000 Work in Process Finished Goods $60,000 $70,000 $400,000 Required: 1. Calculate the predetermined overhead rate for the year. (1 mark) 2. Calculate the direct materials used in production. Assume all raw materials are used in production as direct materials. (1 mark) 3. Calculate the amount of underapplied or overapplied overhead for the year. Specify whether the amount is underapplied or overapplied overhead. (1 mark) 4. What options are available for disposing of underapplied or overapplied overhead? (1 mark) 5. 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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