In December 2012, Yerbury Company’s manager estimated next year’s total direct labor cost assuming 50 persons working an average of 2,000 hours each at an average wage rate of $25 per hour. The manager also estimated the following manufacturing overhead costs for year 2013.

In December 2012, Yerbury Company’s manager estimated next year’s total direct labor cost assuming 50 persons working an average of 2,000 hours each at an average wage rate of $25 per hour. The manager also estimated the following manufacturing overhead costs for year 2013.

 

Indirect labor	$	319,200
Factory supervision		240,000
Rent on factory building		140,000
Factory utilities		88,000
Factory insurance expired		68,000
Depreciation—Factory equipment		480,000
Repairs expense—Factory equipment		60,000
Factory supplies used		68,800
Miscellaneous production costs		36,000
Total estimated overhead costs	$	1,500,000

 

At the end of 2013, records show the company incurred $1,520,000 of actual overhead costs. It completed and sold five jobs with the following direct labor costs: Job 201, $604,000; Job 202, $563,000; Job 203, $298,000; Job 204, $716,000; and Job 205, $314,000. In addition, Job 206 is in process at the end of 2013 and had been charged $17,000 for direct labor. No jobs were in process at the end of 2012. The company’s predetermined overhead rate is based on direct labor cost.

Required
1.a	Determine the predetermined overhead rate for year 2013.

1.b	Determine the total overhead cost applied to each of the six jobs during year 2013.

 

2.

Assuming that any over- or underapplied overhead is not material, prepare the adjusting entry to allocate any over- or underapplied overhead to Cost of Goods Sold at the end of year 2013.

 

Explanation:

1.a

Predetermined overhead rate

 

Estimated overhead costs		$1,500,000		$1,500,000
	=		=		=	60%
Estimated direct labor cost		[50 × 2,000 × $25]		$2,500,000

 
1.c

Overapplied or underapplied overhead determination

Actual overhead cost	$	1,520,000
Less: Applied overhead cost		1,507,200
Underapplied overhead	$	12,800