4-19: Predetermined Overhead Rate; Applying Overhead; Underapplied or Overapplied Overhead
Reston Company uses a job-order costing system. The company applies overhead cost to jobs on the basis of machine hours. For the current year, the company estimated that it would work 36,000 machine-hours and incurs $153,000 in manufacturing overhead cost. The following transactions occurred during the year:
a: Raw materials requisitioned for use in production, $190,000 (80% direct and 20% indirect).
B: The following costs were incurred for employee services:
Sales Comm: $10,000
Admin Sal: $25,000
C: Hear, power, and water costs incurred in the factory, $42,000
D: Insurance costs, $10,000 (90% related to factory operations, 10% to sell and admin activities)
E: Advertising Costs $50,000
F; Depreciation for year $60,000 (85% factory ops, 15% selling and admin)
G: The company used 40,000 machine hours for the year
H: goods that cost $480,000 to manufacture according to their job cost sheets were transferred to finished goods warehouse.
I: Sales for the yeare totalled $700,000. The total cost to manufacture these goods according to their job cost sheets was $475,000.
1) Determine the underapplied or overapplied overhead for the year
2) Prepare an Income statement for the year. (Hint: No calculations are required to determine the cost of goods sold before any adjustment for underapplied or overapplied overhead)
Please find the solution attached.
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The solution is in excel format showing full calculations (using Cell references - which means that if you change the numbers, the sheet would automatically calculate the solutions).
The solution calculates over/under applied overhead and then the preparation of Income Statement
MCQ: Job order cost system, fininished goods inventory, over/under applied overhead
1. For which of the following businesses would the job order cost system be appropriate?
a) Meat processor
b) Automobile manufacturer
c) Oil refinery
d) Construction contractor
2. Which of the following costs are NOT included in finished goods inventory?
a) Direct labor
b) Factory overhead
c) Company president's salary
d) Direct materials
3. At the end of the year, overhead applied was $2,800,000. Actual overhead was $2,000,000. Closing over/under applied overhead into cost of goods sold would cause net income to increase/decrease by?
a) Increase by $800,000
b) Decrease by $800,000
c) Not effect net income
d) Decrease net income by $200,000