Question

At the beginning of the year, Smith Company budgeted overhead of $129,600 as well as 13,500 direct labor hours. During the year, Job K456 was completed with the following information: direct materials cost, $2,750; direct labor cost, $5,355. The average wage for Smith Company employees is $17 per hour.

By the end of the year, 18,100 direct labor hours had actually been worked, and Smith incurred the following actual overhead costs for the year:
Equipment lease $ 6,800
Depreciation on building 19,340
Indirect labor 90,400
Utilities 14,560
Other overhead 41,400
Required:
1. Calculate the overhead rate for the year.
2. Calculate the total cost of Job K456.
3. Prepare the Dec. 31 journal entries to record actual overhead and to apply overhead to production for the year.
4. Is overhead overapplied or underapplied? By how much?
5. Assuming that the normal cost of goods sold for the year is $635,600, what is the adjusted cost of goods sold?

Answer 1

Part 1

$9.60

Part 2

$11,129

Part 3

Journal 1

Debit : Overheads $172,500

Credit : Equipment lease $ 6,800

Credit : Depreciation on building 19,340

Credit : Indirect labor 90,400

Credit : Utilities 14,560

Credit : Other overhead 41,400

Being overheads incurred

Journal 2

Debit : Work In Process $173,760

Credit : Overheads $173,760

Being overheads applied

Part 4

under-applied overheads is $1,260

Part 5

$636,860

Step-by-step explanation:

Overhead rate = Budgeted Overheads ÷ Budgeted Activity

= $129,600 ÷ 13,500

= $9.60

Total cost (Job K456) = $2,750 + $5,355 + $3,024 = $11,129

Actual Overheads = $ 6,800 + $19,340 + $90,400 + $14,560 + $41,400 = $172,500

Applied overheads = 18,100 x $9.60 = $173,760

Since, Actual Overheads < Applied overheads, overheads have been under-applied. Amount of under-applied overheads is $1,260 ($173,760 - $172,500)

Under-applied overheads are added to cost of goods sold. Therefore, adjusted cost of goods sold will be $636,860 ($635,600 + $1,260)