In December 2010, Gomez Company’s manager estimated next year’s total direct lab
ID: 2513633 • Letter: I
Question
In December 2010, Gomez Company’s manager estimated next year’s total direct labor cost assuming 50 persons working an average of 2,090 hours each at an average wage rate of $15 per hour. The manager also estimated the following manufacturing overhead costs for year 2011.
At the end of 2011, records show the company incurred $720,850 of actual overhead costs. It completed and sold five jobs with the following direct labor costs: Job 201, $347,000; Job 202, $339,000; Job 203, $166,000; Job 204, $415,000; and Job 205, $186,000. In addition, Job 206 is in process at the end of 2011 and had been charged $11,700 for direct labor. No jobs were in process at the end of 2010. The company’s predetermined overhead rate is based on direct labor cost.
Determine the predetermined overhead rate for year 2011. (Omit the "%" sign in your response.)
Determine the total overhead cost applied to each of the six jobs during year 2011. (Omit the "$" sign in your response.)
Determine the over- or underapplied overhead at year-end 2011. (Input all amounts as positive values.Omit the "$" sign in your response.)
Assuming that any over- or underapplied overhead is not material, prepare the adjusting entry to allocate any over- or underapplied overhead to Cost of Goods Sold at the end of year 2011. (Omit the "$" sign in your response.)
Indirect labor $ 183,550 Factory supervision 120,000 Rent on factory building 74,000 Factory utilities 45,600 Factory insurance expired 35,300 Depreciation—Factory equipment 245,000 Repairs expense—Factory equipment 30,100 Factory supplies used 35,200 Miscellaneous production costs 15,000 Total estimated overhead costs $ 783,750
Explanation / Answer
1a) calculation of predetermine overhead rate :
Direct labour cost = 50*2090*15 = 1567500
Predetermine overhead rate = 783750*100/1567500 = 50% of labour cost
1b) Calculate applied overhead :
1c) Under applied overhead = 783750-732350 = 51400
2) Journal entry :
Job No Applied overhead 201 173500 202 169500 203 83000 204 207500 205 93000 206 5850 Total 732350