Question

Moonrise Bakery applies factory overhead based on direct labor costs. The company incurred the following costs during 2017: direct materials costs, \(650,000; direct labor costs, \)3,000,000; and factory overhead costs applied, \(1,800,000.

1. Determine the company’s predetermined overhead rate for 2017.

2. Assuming that the company’s \)71,000 ending Work in Process Inventory account for 2017 had \(20,000 of direct labor costs, determine the inventory’s direct materials costs.

3. Assuming that the company’s \)490,000 ending Finished Goods Inventory account for 2017 had $250,000 of direct materials costs, determine the inventory’s direct labor costs and its overhead costs.

Short answer

The overhead rate is 60%, direct materials cost is $39,000 and factory overhead costs are $90,000.

Step-by-step solution

Computation of predetermined overhead rate

$\begin{array}{c}\mathbf{OverheadRate}\mathbf{=}\frac{\mathbf{TotalOverheadcosts}}{\mathbf{totaldirectlaborcosts}}\\ \mathbf{=}\frac{\mathbf{1}\mathbf{,}\mathbf{800}\mathbf{,}\mathbf{000}}{\mathbf{3}\mathbf{,}\mathbf{000}\mathbf{,}\mathbf{000}}\\ \mathbf{=}\mathbf{60}\mathbf{\%}\end{array}$

Computation of inventory’s direct material cost

	Amount ($)
Total cost of work in process inventory	71,000
Less: Direct Labor	-20,000
Less: Factory Overhead	-12,000
Direct Materials	39,000

Determination of overapplied or underapplied overhead

	Amount ($)
Total cost of finished goods inventory	490,000
Less: Direct Materials	250,000
Direct labor and factory overhead costs	240,000
Direct labor costs	150,000
Factory overhead costs (150,000 x 0.6)	90,000