MA W2

Problem 4-17 Applying Overhead; Under applied or Over applied Overhead; Income Statement (LO 4-2, LO 4-4, LO 4-5)

Durnham Company uses a job-order costing system. The following transactions took place last year:

a. Raw materials requisitioned for use in production, $40,000 (80% direct and 20% indirect).

b. Factory utility costs incurred, $14,600.

c. Depreciation recorded on plant and equipment, $28,000. Three-fourths of the depreciation relates to factory equipment, and the remsinder relates to selling and administrative equipment.

d. Costs for salaries and wages incurred as follows:

Direct labor……………. $ 40,000

Indirect labor……….. 18,000

Sales commissions… 10,000

Administrative salaries 25,000

e. Insurance costs incurred, $3,000 (80% relates to factory operations, and 20% relates to selling and administrative activities).

f. Miscellaneous selling and administrative expenses incurred, $18,000.

g. Manufacturing overhead was applied to production. The company applies overhead on the basis of 150% of direct labor cost.

h. Goods that cost $130,000 to manufacture according to their job cost sheets were transferred to the finished goods warehouse.

i. Goods that had cost $120,000 to manufacture according to their job cost sheets were sold for $200,000.

REQUIRED:

1. Determine the underapplied or overapplied overhead for the year.

2. Prepare an income statement for the year. (HINT: No calculkations are required to determine the cost of goods sold before any adjustment for underapplied or overapplied overhead).

Problem 4-18 Applying Overhead in a Service Company (LO 4-2, LO 4-4, LO 4-5)

Heritage Gardens provides complete garden designs and landscaping services. The company uses a job-order costing system to track the costs of its landscaping projects.

The table below provides data concerning the three landscaping projects that were in progress during May. There was no work in process at the beginning of May.

Project

Williams Chandler Nguyen

Designer Hours…………… 200 80 120

Direct Materials…………….. $ 4,800 $ 1,800 $3,600

Direct labor……………………. $ 2,400 $ 1,000 1,500

Actual overhead costs were $16,000 for May. Overhead costs are applied to projects on the basis of designer-hours became most of the overhead is related to the costs of the garden design s studio. The predetermined overhead rate is $45 per designer-hour. The William and Chandler projects were completed in May.

REQUIRED:

1. Compute the amount of overhead cost that would have been applied to each project during Ma.

2. Determine the cost of goods manufactured for May.

3. What is the accumulated cost of the work in process at the end of the month?

4. Determine the underapplied or Overapplied Overhead for May.

Problem 4-22 Multiple Departments; Overhead Rates; Underapplied or Overapplied

(LO 4-1, LO 4-2, LO 4-3, LO 4-4)

Winkle, Kotter, and Zale is a small law firm that contains 10 partners and 10 support persons. The firm employs a job-order costing system to accumulate costs chargeable to each client, and it is organized into two departments – the Research and Documents Department and the Litigation Department. The firm uses predetermined overhead rates to charge the costs of these departments to its clients. At the beginning of the current year, the firm’s management made the following estimates for the year:

Department

Research and Documents Litigation

Research – hours…………………………………….. 20,000 _

Direct attorney-hours……………………………… 9,000 16,000

Materials and supplies……………………………. $ 18,000 $5,000

Direct attorney cost………………………………… $430,000 $800, 000

Departmental overhead cost………………….. $700,000 $320, 000

The predetermined overhead rate in the Research and Documents Department is based on research-hours, and the rate in the Litigation Department is based on direct attorney cost.

The costs charged to each client are made up of three elements: materials and su[[lies used, direct attorney costs incurred, and an applied amount of overhead from each department in which work is performed on the case.

Cae 618-3 was initiated on February 10 and completed on June 30. During this period, the following costs and time on the case.

Department

Research and Documents Litigation

Research – hours………………………………….. 18 _

Direct attorney…………………………………….. 9 42

Materials and supplies ………………………… $ 50 $30

Direct attorney cost……………………………… $410 $2,100

REQUIRED:

1. Compute the predetermined overhead rates used during the year in the Research and documents Department and Litigation Department.

2. Using the rate you computed in (1) above, compute the total overhead cost applied to Case 618-3.

3. What would be the total cost charged to Case 618-3? Show computation by department and in total for the case.

4. At the end of the year, the firm’s records revealed the following actual cost and operating data for all cases handled during the year:

Department

Research and Documents Litigation

Research – hours………………………………….. 23,000 _

Direct attorney-hours…………………………… 8 ,000 15,000

Materials and supplies…………………………. $19,000 $ 6,000

Direct attorney cost ……………………………. $400, 000 $275,000

Departmental overhead cost……………….. $770,000 $300,000

Determine the amount of underapplied or overapplied overhead cost in each department for the year.