Question

Alles Company uses a job costing system that applies factory overhead on the basis of direct labor dollars. No job was in process on February 1. During the month of February, the company worked on these three jobs: Job Number B10 C44 G15 Direct labor ($7/hour) $ 54,000 ? $ 20,000 Direct materials 62,000 81,000 ? Overhead applied ? 45,750 16,000 During the month, the company completed and transferred Job B10 to the Finished Goods Inventory. Jobs C44 and G15 were not completed and remain in Work-in-Process at the cost of $348,650 at the end of the month. Actual factory overhead costs during the month totaled $68,500. Required: 1. What is the predetermined factory overhead rate? 2. Compute the amount of underapplied or overapplied overhead for February.

Answer 1

(a)

For Job G15:

Direct labor = $20,000

Overhead applied = 16,000

Overhead rate =
`(16,000)/(20,000)* 100`

= 0.8 × 100

= 80%

Overhead applied = Direct labor × 80%

= $20,000 × 80%

= $16,000

Overhead is applied on direct labor. Hence, rate is 80%.

Overhead for Job B10 = Direct labor × 80%

= $54,000 × 80%

= $43,200

Therefore,

Total overhead applied = $43,200 + 45,750 + 16,000

= $104,950

(b) Hence,

Overapplied overhead for February:

= Total overhead applied - Actual Overhead

= $104,950 - $68,500

= $36,450