Transcribed Image Text:M. Evans & Sons manufactures parts for radios. For each job order, they maintain ledger sheets on
which they record direct materials, direct labour and factory overhead applied. The factory
overhead account contains postings for actual overhead costs. At the end of the month, the
overhead variance is closed out to the cost of goods sold account.
Factory overhead is applied on the basis of direct labour hours. M. Evans & Sons pre-determined
overhead application rate for 2016 was computed from the following data:
Total estimated factory overheads
Total estimated direct labour hours
During the first month of 2016, the business recorded the following transactions.
i) Purchased materials on account, $50,000
ii) Incurred manufacturing wages of $106,500
iii) Issued direct materials and used direct labour in manufacturing
Job 101
Job 102
Job 103
Job 104
$480,000
40,000
Direct Materials Direct Labour Direct Labour Hours
1,200
1,000
1,100
1,800
$10,000
8,000
9,000
15,000
$22,000
19,000
20,500
29,025
iv) Issued indirect materials to production, $8,000
v) Charged indirect manufacturing wages to production, $15,975
vi) Depreciation expense on factory equipment used on the different jobs, $30,000
vii) Other overhead costs incurred on jobs 101 to 104 amounted to $11,275
viii) Applied factory overhead to the various jobs using the pre-determined factory overhead rate.
ix) Finished Jobs 101 - 103 and transferred to the finished goods inventory account
x) Shipped Job 101 and 102 and billed customers at a mark-up of 50% on cost.
Definition Definition Indirect costs incurred while producing goods or services. Overhead costs cannot be directly attributed to products or services. Overhead includes indirect material cost, indirect labor cost, rent, utilities expenses, and depreciation. Since these costs directly affect the profitability of a company, managing overhead becomes an important task for management.
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