| Assessment 2 Part 3: Analysis of Overhead Using a Predetermined Rate |
| Scenario: |
| Atchison 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 individual 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 |
$1,155,000.00 |
$1,386,000.00 |
$1,617,000.00 |
| Fixed overhead costs |
712,800 |
712,800 |
712,800 |
| Total overhead |
$1,867,800.00 |
$2,098,800.00 |
$2,329,800.00 |
| The expected volume is 180,000 direct labor-hours for the entire year. The following information is for September, when Jobs 6023 and 6024 were completed: |
| Inventories, September 1 |
| Materials and supplies |
$ 31,500 |
| Work in process (Job 6023) |
$162,000 |
| Finished goods |
$337,500 |
| Purchases of materials and supplies |
| Materials |
$445,500 |
| Supplies |
$ 49,500 |
| Materials and supplies requisitioned for production |
| Job 6023 |
$148,500 |
| Job 6024 |
123,750 |
| Job 6025 |
84,150 |
| Supplies |
19,800 |
|
$376,200 |
| Factory direct labor-hours (DLH) |
| Job 6023 |
10,500 DLH |
| Job 6024 |
9,000 DLH |
| Job 6025 |
6,000 DLH |
| Labor costs |
| Direct labor wages (all hours @ $9) |
$229,500 |
| Indirect labor wages (12,000 hours) |
51,000 |
| Supervisory salaries |
118,800 |
| Building occupancy costs (heat, light, depreciation, etc.) |
| Factory facilities |
$21,450 |
| Sales and administrative offices |
8,250 |
| Factory equipment costs |
| Power |
13,200 |
| Repairs and maintenance |
4,950 |
| Other |
8,250 |
|
$26,400 |
| REQUIRED |
| Answer the following questions: |
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|
|
Answers |
| 1. Compute the predetermined overhead rate (combined fixed and variable) to be used to apply overhead to individual jobs during the year. (Note: Regardless of your answer to requirement [1], assume that the predetermined overhead rate is $10 per direct labor-hour. Use this amount in answering requirements [2] through [5].) |
| 2. Compute the total cost of Job 6023 when it is finished. |
| 3. How much of factory overhead cost was applied to Job 6025 during September? |
| 4. What total amount of overhead was applied to jobs during September? |
| 5. Compute actual factory overhead incurred during September. |
| 6. At the end of the year, Atchison Company had the following account balances: |
| Overapplied Overhead |
$ 3,300 |
| Cost of Goods Sold |
3,234,000 |
| Work-in-Process Inventory |
125,400 |
| Finished Goods Inventory |
270,600 |
| How would you recommend treating the over applied overhead, assuming that it is not material? Show the new account balances in the following table: |
| Overapplied Overhead |
| Cost of Goods Sold |
| Work-in-Process Inventory |
| Finished Goods Inventory |
