112. Rockingham Manufacturing Company builds highly sophisticated engine parts for cars
competing in stock racing and drag racing. The company uses a normal costing system that
applies factory overhead on the basis of direct labor–hours. For the current year the company
estimated that it would incur $256,000 in factory overhead costs and 16,000 direct labor-hours.
The April 1 balance in inventory accounts follow:
Material Inventory $54,000
Work-in-Process Inventory (Y12) $21,000
Finished Goods Inventory (Z11) $108,000
Job Y12 is the only job in process on April 1. The following transactions were recorded for the
month of April:
a. Purchased materials on account, $160,000
b. Issued $180,000 of materials to production, $6,000 of which was for indirect materials. Cost of
direct materials issued:
Job Y12 $46,000
Job D20 84,000
Job E33 44,000
c. Incurred and paid payroll cost of $40,920
Direct labor cost ($20/hour; total 1,196 hours)
Job Y12 $12,220
Job D20 8,060
Job E33 3,640
Indirect labor 5,000
Selling and administrative salaries 12,000
d. Recognize deprecation for the month:
Manufacturing assets $4,000
Selling and administrative assets 3,000
e. Paid advertising expenses $15,000
f. Incurred factory utility costs 3,600
g. Incurred other factory overhead costs 3,200
h. Applied factory overhead to production on the basis of direct labor-hours
i. Completed Job Y12 during the month and transferred it to the finished goods warehouse
j. Sold Job Z11 on account for $120,000
k. Received $50,000 of collections on account from customers during the month
Required:
(1) Calculate the company’s predetermined overhead rate.
(2) Prepare journal entries for the April transactions. Record job-specific items in individual
Work-in-Process accounts.
(3) What was the balance of the Materials Inventory account on April 30?
(4) What was the balance of the Work-in-Process Inventory control account on April 30?
(5) What was the amount of underapplied or overapplied overhead?
113. Jones and Jones CPA firm has the following budget for the year:
Direct labor (for professional hours charged to clients) $200,000
Overhead
Indirect materials 10,000
Indirect labor 250,000
Depreciation – Building 50,000
Depreciation – Furniture 5,000
Utilities 12,000
Insurance 4,800
Property taxes 5,200
Other expenses 3,000
Total $340,000
The firm uses direct labor as the cost driver to apply overhead to clients. During January, the firm
worked for many clients; data for two of them follow:
Henderson account
Direct materials $800
Direct labor $3,000
Fisher account
Direct materials $2,380
Direct labor $12,600
Required:
(1) Compute the Jones and Jones budgeted overhead rate. Explain how this is used.
(2) Compute the amount of overhead to be charged to the Henderson and Fisher accounts using
the predetermined overhead rate calculated in requirement (1).
(3) Compute the separate job cost for the Henderson and Fisher accounts.
114. Ramirez Company uses a predetermined overhead rate. Overhead for the next twelve
months is estimated to be $500,000. Ramirez applies overhead as a percentage of direct labor
cost. Direct labor costs are estimated to be $625,000 for the next year. During the year actual
direct labor costs amounted to $600,000 and the actual overhead was as follows:
Maintenance $50,000
Indirect materials 25,000
Indirect labor 80,000
Factory rent 90,000
Depreciation 70,000
Payroll taxes 80,000
Other 80,000
Total $475,000
Required:
(1) Calculate the over/under-applied overhead for the year.
(2) Prepare the journal entry to close the overhead accounts, assuming that the over/under–
applied overhead is closed to cost of goods sold.
115. The following information is for Stier Company for the month of November:
a. Factory overhead costs are applied to jobs at the predetermined rate of $80 per labor-hour.
Job X-14 incurred 2,300 labor-hours; Job SM-4 used 1,850 labor-hours.
b. Job X-14 was shipped to customers during November.
The company closed the overapplied or underapplied overhead to the Cost of Goods Sold
account at the end of November.
c. Factory utilities, factory depreciation, and factory insurance incurred is summarized by these
factory vouchers, invoices, and cost memos:
Utilities $44,500
Depreciation 53,500
Insurance 38,600
d. The Company purchased the following direct materials and indirect materials:
Material A $6,000
Material B 7,000
Indirect materials 4,250
Total $17,250
e. Direct materials and indirect materials used are as follows:
Job X-14 Job SM-4 Total
Material A $5,450 $33,000 $38,450
Material B 1,650 25,500 27,150
Subtotal $7,100 $58,500 $65,600
Indirect materials 66,500
Total $132,100
f. Factory labor incurred for the two jobs and indirect labor is as follows:
Job X-14 $32,200
Job SM-4 25,900
Indirect labor 122,000
Total $180,100
Required:
1. Calculate the amount of overapplied or underapplied overhead and state whether the cost of
goods sold account will be increased or decreased by the adjustment.
2. Calculate the total manufacturing cost for Job X-14 and Job SM-4 for November.
116. Manufacturers of large equipment such as aircraft and ships and companies involved in
road construction have jobs that may require two or more years for completion. For example,
Boeing Corporation might have an order for 50 aircraft for a particular airline, and the order will
extend over a three– to five-year period. Aircraft are delivered as completed, but not in a batch of
50 at one time. In the typical fashion, the overhead application rate must be calculated and
applied in such a way that each aircraft that is delivered has the proper amount of overhead for
that aircraft.
Required:
What unique difficulties do you see in the calculation and application of overhead in industries
such as aircraft manufacturing or shipbuilding? How do you think these firms should respond to
these difficulties in determining overhead rates and applying overhead costs?
117. Humming Company manufactures high quality musical instruments for professional
musicians. The company estimated that it would incur $120,000 in factory overhead costs and
8,000 direct labor-hours for the year. The April 1 balances in the inventory accounts follow:
Materials inventory $27,000
Work-in-process inventory (S10) 10,500
Finished goods inventory (J21) 54,000
Job S10 is the only job in process on April 1. The following transactions were recorded for the
month of April.
a. Purchased materials on account, $90,000.
b. Issued $91,000 of materials to production, $4,000 of which was for indirect materials. Cost of
direct materials issued:
Job S10 $23,000
Job C20 42,000
Job M54 22,000
c. Incurred and paid payroll cost of $20,460:
Direct labor cost ($13/hour; total 920 hours)
Job S10 $6,110
Job C20 4,030
Job M54 1,820
Indirect labor 2,500
Selling and administrative salaries 6,000
d. Recognized depreciation for the month:
Manufacturing assets $2,200
Selling and administrative assets 1,700
e. Paid advertising expenses $6,000
f. Incurred factory utilities costs $1,300
g. Incurred other factory overhead costs $1,600.
h. Applied factory overhead to production on the basis of direct labor-hours.
i. Completed Job S10 during the month and transferred it to the finished goods warehouse.
j. Sold Job J21 on account for $59,000.
k. Received $25,000 of collections on account from customers during the month.
Required:
1. Calculate the company’s predetermined overhead rate.
2. Prepare journal entries for the April transactions. Letter your entries from a to k.
3. What was the balance of the Materials Inventory account on April 30?
4. What was the balance of the Work–in-Process Inventory account on April 30?
5. What was the amount of underapplied or overapplied overhead?
k.
118. Boston Manufacturing Company had the following cost information for May.
Materials Requisitions
Department Number Job Number Quantity Cost per unit
1 88X 6,650 $8.31
1 88Y 2,130 $2.52
1 88Y 921 $4.18
1 88Z 63 $3.23
1 88Z 1,818 $9.16
Labor hours and rates
Department Number Job No. Labor Hours
1 88X 554
1 88Y 25
1 88Z 613
2 88Y 321
2 88Z 618
The labor rate in Department 1 is $10.50 and in Department 2 is $9.50. The overhead rate in
Department 1 is based on direct labor-hours, at $4.50 per hour; in Department 2 the rate is 125
percent of direct labor cost. Boston had no beginning work–in-process inventory for May.
Required:
Calculate the direct materials, direct labor, factory overhead, and total costs for each job.
