7-34. (10 Min.) Prorate Over- or Underapplied Overhead: Aspen Company.
First, determine the percentage of overhead applied in each account:
Applied
Overhead
% of
Total
Applied
Work in process inventory (Job 2–3)
$162,500
20%
(= $162,500 ÷ $812,500)
Finished goods (Job 2-2) …………..
406,250
50
(= $406,250 ÷ $812,500)
Cost of goods sold (Job 2-1) ……..
243,750
30
(= $243,750 ÷ $812,500)
Total …………………………………..
$812,500
100%
Second, allocate the overapplied overhead to each account and record as follows:
7-35. (20 min.) Applying Overhead Using a Predetermined Rate: Mary’s
Landscaping.
Since Job No. 3318 is the only job in the account, the ending balance of the account must
equal the total cost of the job. We can find the account’s ending balance using the basic
cost equation:
BB + TI – TO = EB
EB
=
$12,500 + ($81,000 + $54,000 + $43,200) – $162,000
EB
=
$28,700
Factory overhead
=
80% $3,375
=
Total cost
=
direct materials + direct labor + factory overhead
$28,700
=
direct materials + $3,375 + $2,700
Direct materials
=
$28,700 – $3,375 – $2,700
7-36. (10 min.) Applying Overhead Using a Predetermined Rate: Turco Products.
The ending balance in Work in Process can be determined from the following T-acocunt:
Work-in-process inventory
Balance 9/1
70,200
Direct materials
421,200
832,000
To Finished Goods Inventory
Direct labor
262,600
Overhead applied
315,120
Balance 9/30
237,120*
*
7-37. (10 min.) Calculating Over- or Underapplied Overhead: Tom’s Tool & Die.
Application rate:
$714,000
= $10.50 per machine hour
68,000 hours
Underapplied overhead = $773,500 – $729,750 = $43,750
7-38. (20 min.) Predetermined Overhead Rates: Ethical Issues: Marine
Components.
a.
Application rate:
$10,000
= $2.50 per machine hour
(2,000 + 2,000) hours
b.
Application rate:
$10,000
= 100% of Direct-labor cost
($2,500 + 7,500)
7-39. (20 min.) Predetermined Overhead Rates: Ethical Issues: Marine
Components.
a.
Application rate:
$12,000
= $1.20 per machine hour
(3,000 + 7,000) hours
b.
Application rate:
$12,000
= 200% of Direct-labor cost
($3,000 + $3,000)
7-40. (20 min.) Job Costing in a Service Organization: Arthur’s Olde Consulting
Corporation.
a. Beginning of month
Direct
Labor
Applied
Overhead
Total
During month
Beginning
Total
Additional
Direct
Labor
Additional
Applied
Overhead
Total
b.
Direct
Labor
Applied
Overhead
(@60%)
Total
SY–404 …..
$51,120*
+
$30,672
=
$81,792
*$51,120 = $148,320 – $25,200 – $72,000
c. Overhead applied during month:
SY–400 ………………..
$ 15,120
SY–403 ………………..
43,200
7-41. (30 min.) Job Costing In A Service Organization: RCMP.
a.
Wages Payable
Work in Process
Cost of
Services Billed
600,000a
600,000a
672,000c
672,000c
12,000d
72,000b
Service Overhead Control
Applied Service O.H.
60,000
60,000d
72,000d
72,000b
b.
Royal Consulting and Mediation Practice
Income Statement
For the Month Ended August 31
Sales revenue ………………………………….
$1,200,000
a
Cost of services billed ……………………….
$672,000
Subtract: Overapplied service overhead
12,000
660,000
Gross margin ……………………………………
$540,000
Marketing and administration ……………..
7-42. (30 min.) Job Costing In A Service Organization: Allocation Busters.
a.
Wages Payable
Work in Process
Cost of
Services Billed
220,000a
220,000a
264,000c
264,000c
2,000d
44,000b
Service Overhead Control
Applied Service O.H.
42,000
42,000d
44,000d
44,000b
b.
Allocation Busters
Income Statement
For the Month Ended March 31
Sales revenue …………………………………..
$550,000
a
Cost of services billed ………………………..
$264,000
Subtract: Overapplied service overhead .
2,000
262,000
Gross margin ……………………………………
$288,000
Marketing and administration ………………
7-43. (30 min.) Job Costing In A Service Organization: TechMaster.
a.
Wages Payable
Work in Process
Cost of
Services Billed
65,625a
65,625a
105,000c
105,000c
4,375d
39,375b
Service Overhead Control
Applied Service O.H.
b.
TechMaster
Income Statement
For the Month Ended August 31
Sales revenue ………………………………….
$175,000
a
Cost of services billed ……………………….
$105,000
Subtract: Overapplied service overhead
4,375
100,625
Gross margin ……………………………………
$74,375
Marketing and administration ……………..
7-44. (15 min.) Evaluating Projects: Spot Construction.
a. $1,060,000 under budget.
At this time, the project is 80 percent complete with an actual cost of $8,120,000. The
budget estimated a cost of $9,180,000 to achieve an 80 percent completion rate.
Therefore, the project is $1,060,000 (= $9,180,000 – $8,120,000) under budget.
7-45. (15 min.) Evaluating Projects: Cook Contractors.
c. $1,810,000 over budget.
At this time, the project is 28 percent complete with an actual cost of $10,010,000. The
budget estimated a cost of $8,200,000 to achieve a 28 percent completion rate.
Therefore, the project is $1,060,000 (= $10,010,000 – $8,200,000) over budget.
Solutions to Problems
7-46. (15 min.) Applying Overhead Using a Predetermined Rate: Pepper Products.
This problem is a straight-forward inventory equation problem. It requires, however, the
calculation of the cost accumulated in Job 1947 in order to determine the ending Work-
in-Process balance. To get that, we need to calculate the predetermined overhead
rate.
Or
Beginning inventory = Transfers to Finished goods + Ending inventory – Additions
= $171,000 + $20,740 – $37,600 – $41,800 – $90,240
= $22,100
7-47. (15 min.) Estimate Machine-Hours Worked From Overhead Data: Melbourne
Company.
With $320,000 in fixed costs expected and 40,000 machine hours expected, the
application rate for the fixed costs was $8.00 per machine hour (= $320,000 ÷ 40,000
hours).
Overhead applied = Budgeted overhead + Overapplied overhead
7-48. (25 min.) Estimate Hours Worked From Overhead Data: Capitol, Inc.
115,050 direct labor-hours were worked. With $702,000 in fixed costs expected and
117,000 direct-labor-hours expected, the application rate for the fixed costs was $6.00 per
direct labor-hour. If the underapplied overhead, all due to production volume, is $11,700,
then 1,950 fewer than expected direct labor-hours were worked ($11,700 ÷ $6 per hour).
Consequently, 115,050 (= 117,000 – 1,950) direct labor-hours were worked.
Also, see T accounts below:
Manufacturing Overhead Control
Applied Manufacturing Overhead
7-49. (20 min.) Predetermined Rates, Prorate Over- or Underapplied Overhead:
Wabash Products.
$4,617,200.
The predetermined overhead rate is:
Predetermined rate
=
Expected manufacturing overhead
÷
Direct labor cost
240%
=
$2,400,000
÷
$1,000,000
Overhead applied
=
Predetermined rate
Direct labor cost
$2,640,000
=
240%
$1,100,000
=
Overhead incurred
=
$2,640,000
$2,472,000
7-50. (40 min.) Assigning Costs—Missing Data.
(a) $100,000, the other side of the credit to the Accounts Payable—Materials Suppliers
account.
(b) $94,000, From the Materials Inventory account,
$8,000 + $100,000 – $4,300 – $9,700 = $94,000.
(c) $121,000 = $162,000 + $119,500 – $124,300 – $36,200.
(d) $180,500, the charge to Work-in-process inventory that is not due to direct materials or
7-51. (50 min.) Assigning Costs—Missing Data.
Materials Inventory
Balance 11/1
45,400
(a)
86,200
Direct materials
Purchases
113,600
(a)
16,400
Indirect materials
Balance 11/30
56,400
Work-in-Process Inventory
Balance 11/1
32,600
(given)
Direct materials
86,200
(b)
(b)
Overhead applied
(d)
(h)
Finished Goods Inventory
Balance 11/1
129,600
(d)
374,400
(c)
403,000
Balance 11/30
101,000
(h)
Proration
3,762
Balance 11/30
104,762
Cost of Goods Sold
(c)
403,000
(h)
Proration
15,048
(a)
16,400
(e)
26,000
48,200
(g)
198,480
(h)
(given)
(h)
7-51. (continued)
Wages Payable
(b)
176,000
(e)
26,000
Sales Revenue
(given)
725,400
(a) From the work in process account, we obtain the $86,200 in direct materials issued.
The beginning balance equals the ending balance of $56,400 minus the increase of
$11,000 equals $45,400. The unaccounted balance represents indirect materials and is
determined as:
$45,400 + $113,600 – $56,400 – $86,200 (debit to work in process)
=
$16,400
150% X
150% X
=
180% X
=
180% X
(d) Finished goods BB = Finished Goods EB + $28,600
BB
=
101,000 + 28,600
BB
=
$129,600
Cost of goods manufactured
=
Finished goods EB + Cost of goods sold –
Finished Goods BB
=
$101,000 + $403,000 – $129,600
=
$374,400
Work in process EB
=
$32,600 + $86,200 + $176,000 + $264,000 – $374,400
=
$184,400
(e)
Indirect labor
=
Total credits to Wages Payable – Direct labor
=
$202,000 – $176,000
7-51. (continued)
(f) Charge factory depreciation to manufacturing overhead.
(g) Charge overhead to manufacturing overhead.
7-52. (40 min.) Analysis Of Overhead Using A Predetermined Rate: Kansas
Company.
a.
$10.60 per DLH.
$1,908,000
= $10.60 per DLH
180,000
b.
$475,500.
Beginning balance ……..
$162,000
Direct materials …………
135,000
Direct labor ……………….
84,000
*
Overhead applied ………
94,500
**
$475,500
e.
$220,500.
Supplies ……………………….
Indirect labor wages ………
Supervisory salaries ………
Factory facilities …………….
f. Credit it to cost of goods sold. The amount is clearly not material (0.1% of cost of
goods sold), so it is not worth the effort involved in prorating.
Overapplied Overhead …………….
$0
Cost of Goods Sold…………………
2,937,000*
Work-in-Process Inventory ………
114,000
Finished Goods Inventory ………..
246,000
*$2,940,000 – $3,000
If it were material, then the proper answer would be to prorate it between work–in–
process inventory, finished goods inventory, and cost of goods sold.
7-53. (40 min.) Analysis Of Overhead Using A Predetermined Rate: Script
Company.
a.
$98 per DLH.
$2,352,000
= $98 per DLH
24,000
b.
$890,300.
Beginning balance ……..
$219,120
Direct materials ………….
674,400
Direct labor ………………..
403,200
*
Overhead applied ……….
840,000
**
$2,136,720
*The wage rate for direct labor is $48.00 per hour. $48.00 8,400 hours = $403,200.
**$100.00 8,400 direct labor-hours.
c. $222,000 (= $100.00 2,220 direct labor-hours)
d. $1,428,000 (= $100.00 14,280 direct labor-hours)
e.
$826,800.
Supplies ……………………….
$ 184,080
Indirect labor wages ……….
151,200
Supervisory salaries ……….
307,200
Factory facilities …………….
88,560
Factory equipment costs …
95,760
$826,800
Underapplied Overhead ………….
Cost of Goods Sold ………………..
Finished Goods Inventory ……….
*$67,200,000 + (70% $7,200,000)
**$9,600,000 + (10% $7,200,000)
7-54. (30 min.) Finding Missing Date: BackupsRntUs
a. March 31: Ending Work-in-process inventory:
—only one job is remaining in ending Work-in-process inventory.
Direct Materials ……………………..
$15,600
Direct Labor ………………………….
10,800
($36 per hour 300 hours)
Manufacturing Overhead ………..
5,400
($18 per hour 300 hours)
Total Cost of Ending Work in
Process Inventory ……………..
$31,800
b. Direct materials purchased during March:
Since the accounts payable account is used only for direct material purchases, the
month’s purchases can be determined from analyzing the accounts payable account:
Beginning Balance
+
Transfers In
–
Transfers Out
=
Ending Balance
$36,000
+
Transfers In
–
$252,000
=
$54,000
Transfers In
=
$270,000
Beginning Finished
Cost of Goods
Cost of
Ending Finished
–
=
Cost of Goods Sold
7-55. (30 min.) Cost Accumulation—Service: Youth Athletic Services.
T-accounts (Not required—see next page for income statement)
Wages, Salaries,
and Accounts
Payable
Managing Direct
Labor Cost
Officiating
Direct Labor Cost
Training Direct
Labor Cost
Dispute
Resolution
Direct Labor Cost
Unassigned
Labor Cost
4,800
1,200
1,875
1,350
375
(= $15
320)
(= $15
80)
(= $15
125)
(= $15
90)
(= $15
25)
9,600
Managing
Direct Overhead
Officiating Direct
Overhead Cost
Training Direct
Overhead Cost
Dispute
Resolution Direct
Overhead Cost