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    Job Order Costing - Over/Under Applied Overhead

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    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:
    DL: $160,000
    IL: $18,000
    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)

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    Solution Summary

    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

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