Faithfully Yours Corp. uses Job Order Costing and applies overhead costs to jobs based on machine-hours (MH). During the last quarter of 2010, the company estimated that it would utilize 50,000 MH and incur $400,000 in overhead cost.
Actual costs incurred during 2011 are the following:
General selling expenses $24,000
Factory depreciation 245,000
Direct Labor 90,000
Indirect Labor 70,000
Administrative salaries 150,000
Factory Insurance 12,000
Direct materials 285,000
Indirect materials 25,000
Advertising expenses 135,000
Sales commissions 115,000
Factory utility expense 57,000
Non-factory depreciated 85,000
Non-factory insurance 8,000
Cost of goods sold (not adjusted
for under or overapplied overhead) 940,000
Sales revenue for 2011 was $1,755,000.
Actual machine hours worked for the year was 55,000.
1. Determine the predetermined overhead rate.
2. Determine the amount of overhead applied during the year.
3. Was overhead overapplied or underapplied? How much?
4. Prepare an income statement for the year in good form.
Solution is provided in four parts in the form of related costing statements and supporting explanatory notes in a separate excel file attached.
1 Predetermined overhead rate per machine hour
1Predetermined overhead rate = Estimated total overhead costs / Estimated total units in the base
Predetermined overhead rate per machine hour=400000/50000
Predetermined overhead rate per machine hour=$8.00
2 Overhead applied during the year:
2 Overhead applied on the basis of actual machine hours during working period
55000 hours X $8.00 $440,000
Job Cost sheet
Direct Material used: $285,000
Direct Labour ...
The job order costing selling expenses are examined.