All jobs at Frankfurt Inc. which uses a job order costing system, go through two
ID: 2371228 • Letter: A
Question
All jobs at Frankfurt Inc. which uses a job order costing system, go through two departments (fabrication and assembly). Overhead is applied to jobs based on machine hours in fabrication and on labor hours in assembly. In December 2009, corporate management estimated the following production data for 2010 in setting its predetermine OH rates:
Fabrication Assembly
Machine hours 104,000 44,000
Direct labor hours 50,400 320,000
Departmental overhead $1,560,000 $1,760,000
Two jobs completed during 2010 were #2296 and #2297. The job order cost sheets showed the following information about these jobs:
Job #2296 Job #2297
Direct material cost $118,500 $147,200
Direct labor hours - Fabrication 900 460
Machine hours - Fabrication 1,800 900
Direct labor hours - Assembly 850 400
Machine hours - Assembly 108 46
Direct labor workers are paid $12 per hour in the Fabrication Department and $10 per hour in the Assembly Department.
a. Compute the predetermined OH rates used in Fabrication and Assembly for 2010.
b. Compute the direct labor cost associated with each for both departments.
c. Compute the amount of overhead assigned to each job in each department.
d. Determine the total cost of Jobs #2296 and #2297.
e. Actual data for 2010 for each department are as follows:
Fabricating Assembly
Machine hours 103,200 43,200
Direct labor hours 47,800 324,000
Departmental overhead $1,528,000 $1,790,000
What is the amount of under applied or over applied overhead for each department for the year ended December 31, 2010?
Explanation / Answer
a. Compute the predetermined OH rates used in Fabrication and Assembly for 2010.
For Fabrication: 1,560,000/104,000 = $15 per machine hour
For Assembly: 1,760,000/320,000 = $5.50 per labor hour
b. Compute the direct labor cost associated with each for both departments.
Job #2296: Direct labor cost = $12*900 + $10*850 = $19,300
Job #2297: Direct labor cost = $12*460 + $10*400 = $9,520
c. Compute the amount of overhead assigned to each job in each department.
Job #2296: Overhead assigned: For fabrication: 1,800 machine hours*15 per machine hour = $27,000. For assembly: 850 direct labor hours*$5.50 per labor hour = $4675. Total overhead assigned: 27,000 + 4675 = $31,675.
For #2297: Overhead assigned: Fabrication: 900 machine hours*15 per machine hour = 13,500. For assembly: 400*5.5 = 2200. Total overhead assigned: $15,700
d. Determine the total cost of Jobs #2296 and #2297.
#2296: DM + DL + OH = 118,500 + 19,300 + 31,675 = $169,475.
#2297: DM + DL + OH = 147,200 + 9520 + 15,700 = $172,420
e. Actual data for 2010 for each department are as follows:
Fabricating Assembly
Machine hours 103,200 43,200
Direct labor hours 47,800 324,000
Departmental overhead $1,528,000 $1,790,000
What is the amount of under applied or over applied overhead for each department for the year ended December 31, 2010?
For fabricating: Overhead applied = machine hours*$15 per machine hour = 103,200 hours*$15 per machine hour = $1,548,000
1,548,000 – 1,528,000 = $20,000 over applied for fabricating department
For assembly: Overhead applied = direct labor hours*$5.50 per direct labor hour = 324,000*$5.50 per labor hour = $1,782,000
1,782,000 – 1,790,000 = -8,000, which means 8,000 under applied for assembly department.