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Analysis of Overhead Using a Predetermined Rate

Kansas Company uses a job costing accounting system for its production costs. The company uses a predetermined overhead rate based on direct labor-hours to apply overhead to indi- vidual jobs. The company prepared an estimate of overhead costs at different volumes for the current year as follows:

Direct labor-hours. . . . . . . . . 150,000 180,000 210,000

Variable overhead costs. . . . $1,050,000 $1,260,000 $1,470,000

Fixed overhead costs . . . . . . 648,000 648,000 648,000

Total overhead . . . . . . . . . $1,698,000 $1,908,000 $2,118,000

The expected volume is 180,000 direct labor-hours for the entire year. The following in- formation is for March, when Jobs 6023 and 6024 were completed:

Inventories, March 1

Materials and supplies . . . . . . . . . . . . . . . . . . . . $31,500

Work in process (Job 6023) . . . . . . . . . . . . . . . . $162,000

Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . $337,500

Purchases of materials and supplies

Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $405,000

Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $45,000

Materials and supplies requisitioned for production

Job 6023 . . . . . . . . . . . . . . . . . . . . . $135,000

Job 6024 . . . . . . . . . . . . . . . . . . . . . 112,500

Job 6025 . . . . . . . . . . . . . . . . . . . . . 76,500

Supplies . . . . . . . . . . . . . . . . . . . . . 18,000

$342,000

Factory direct labor-hours (DLH)

Job 6023 . . . . . . . . . . . . . . . . . . . . . 10,500 DHL

Job 6024 . . . . . . . . . . . . . . . . . . . . . 9,000 DHL

Job 6025 . . . . . . . . . . . . . . . . . . . . . 6,000 DHL

Labor costs

Direct labor wages (all hours @ $8) $204,000

Indirect labor wages (12,000 hours) 51,000

Supervisory salaries . . . . . . . . . . 108,000

Building occupancy costs (heat, light, depreciation, etc.)

Factory facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $19,500

Sales and administrative offices . . . . . . . . . . . . . . . . . . . . 7,500

Factory equipment costs

Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000

Repairs and maintenance . . . . . . . . . . . . . . . . . . . . . . . . . 4,500

Other . . . . . . . . . . 7,500

$24,000

Required

1. Compute the predetermined overhead rate (combined fixed and variable) to be used to apply overhead to individual jobs during the year.
2. (Note: Regardless of your answer to requirement [a], assume that the predetermined overhead rate is $9 per direct labor-hour. Use this amount in answering requirements [b] through [e].)
3. Compute the total cost of Job 6023 when it is finished.
4. How much of factory overhead cost was applied to Job 6025 during March?
5. What total amount of overhead was applied to jobs during March?
6. Compute actual factory overhead incurred during March.
7. At the end of the year, Kansas Company had the following account balances:

Overapplied Overhead . . . . . . . . . . . . $3,000

Cost of Goods Sold . . . . . . . . . . . . . . 2,940,000

Work-in-Process Inventory . . . . . . . . .114,000

Finished Goods Inventory. . . . . . . . . . 246,000

How would you recommend treating the overapplied overhead, assuming that it is not mate- rial? Show the new account balances in the following table:

Overapplied Overhead . . . . . . . . . .?

Cost of Goods Sold . . . . . . . . . . . . . ?

Work-in-Process Inventory . . . . . . . .?

Finished Goods Inventory . . . . . . .?

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