The Futons for You Company sells batches of custom-made futons to customers and uses predetermined rates for fixed overhead, based on machine hours.
The following data are available for last year:
Budgeted and actual fixed factory overhead cost................... $160,000
Budgeted machine hours................................................. 100,000
Actual machine hours used................................................110,000
..............................................................Machine Hours Used
Job 20..............................................11,000
Job 21..............................................16,000
Job 22..............................................14,000
Job 23................................................9,000
REQUIRED
A. Compute the estimated overhead allocation rate to be used for the year.
B. Determine the overhead to be allocated to Job 21.
C. Determine total over applied or under applied overhead at the end of the year.
D. Should cost of goods sold be increased or decreased at the end of the year? Why?
E. If the amount of over applied or under applied overhead is material, how is it assigned?
F. Suppose Job 21 required a special fabric cover for the futon pads. This type of fabric dulls the blades of the cutting machine, and a number of fabric covers were unusable. Should this spoilage be recorded for Job 21 or for all jobs processed this period? Explain your answer.