Chapter 15: Q11DQ (page 695)
Why must a company use predetermined overhead rates when using job order costing?
Having predetermined overhead rates allows production managers to allocate overhead costs in advance.
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What events cause debits to be recorded in the Factory Overhead account? What events cause credits to be recorded in the Factory Overhead account?
In December 2016, Infodeo established its predetermined overhead rate for movies produced during 2017 by using the following cost predictions: overhead costs, \(1,680,000, and direct labor costs, \)480,000. At year-end 2017, the company’s records show that actual overhead costs for the year are \(1,652,000. Actual direct labor cost had been assigned to jobs as follows.
Movies completed and released . . . . . . . . . . . . . . . \)425,000
Movies still in production . . . . . . . . . . . . . . . . . . . . . 50,000
Total actual direct labor cost . . . . . . . . . . . . . . . . . . . $475,000
1. Determine the predetermined overhead rate for 2017.
2. Set up a T-account for overhead and enter the overhead costs incurred and the amounts applied to movies during the year using the predetermined overhead rate.
3. Determine whether overhead is overapplied or underapplied (and the amount) during the year.
4. Prepare the adjusting entry to allocate any over- or underapplied overhead to Cost of Goods Sold.
In December 2016, Shire Computer’s management establishes the 2017 predetermined overhead rate based on direct labor cost. The information used in setting this rate includes estimates that the company will incur \(747,500 of overhead costs and \)575,000 of direct labor cost in year 2017. During March 2017, Shire began and completed Job 13-56.
1. What is the predetermined overhead rate for 2017?
2. Use the information on the following job cost sheet to determine the total cost of the job.
JOB COST SHEET Customer’s Name Keiser Co Job No 13-56 Job Description 5 plasma monitors—61 inch Overhead Direct Materials Direct Labor Costs Applied Date Requisition No. Amount Time-Ticket No Amount Rate Amount Mar. 8 4-129 \(5,000 T-306 \) 700 Mar. 11 4-142 7,020 T-432 1,250 Mar. 18 4-167 3,330 T-456 1,250 Totals |
At the beginning of a year, a company predicts total direct materials costs of \(900,000 and total overhead costs of \)1,170,000. If the company uses direct materials costs as its activity base to apply overhead, what is the predetermined overhead rate it should use during the year?
On March 1 a dressmaker starts work on three custom-designed wedding dresses. The company uses job order costing and applies overhead to each job (dress) at the rate of 40% of direct materials costs. During the month, the jobs used direct materials as shown below. Compute the amount of overhead applied to each of the three jobs.
Job 1 | Job 2 | Job 3 | |
Direct material used | \(5,000 | \)7,000 | $1,500 |
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