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Simple Plant - Accounting for Decision Making and Control

Simple Plant manufactures DNA test strips. Manufacturing overhead is applied to units produced using direct labor dollars as the allocation base. The overhead rate is calculated prior to the beginning of the fiscal year that runs January 1 to December 31. Simple Plant has one manufacturing employee, J. Kusic, and one overhead expense besides indirect labor, property taxes. J. Kusic's salary and fringe benefits for next year are forecast to be $50,000> Kusc is expected to work 2,000 hours at a cost of $25 per hour (50,000/2,000). Eighty percent of Kusic's time is budgeted to be direct labor, and the remainder is budgeted to be indirect labor. Property taxes are projected to be $110,000. There was no beginning balance of work in process on January 1.

a) Calculate Simple Pant's overhead rate for next year.
b) On January 2, the first working day of the new fiscal year, Kusic works eight hours (five hours on mnufacturing test strips and three hours waiting for raw materials to arrive). Each day Simple Plant posts all entries (transactions ) to the accounts. What are the balances in the Overhead account and the Work-in-Process account at the close of business on January 2?
c) At the end of the year, Kusic's salary and benefits are &50,000, with $44,000 of the total charged to test strips manufactured. Kusic worded 2,000 hours during the year. Property taxes paid during the year amounted to $103,000. What, if any, is the balance in the overhead account before an adjusting entry is made to transfer the balance to other accounts?

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Your tutorial in Excel (attached) shows you how to compute the predetermined overhead rate, how to ...

Solution Summary

Your tutorial in Excel (attached) shows you how to compute the predetermined overhead rate, how to use the rate to apply overhead, and how this impact the work in process account and the overhead control account. Then the response shows you how to record the first day of activity and then the full year, teasing out the direct and indirect labor and using the direct labor to apply overhead.

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