Whitlock Manufacturing uses a job costing accounting system for its production costs. The company uses a predetermined overhead rate based on direct materials costs to apply overhead to individual jobs. The company prepared an estimate of overhead costs at different volumes for the current year as follows: Direct materials costs $ 300,000 $ 400,000 $ 500,000 Variable overhead costs $ 432,000 $ 576,000 $ 720,000 Fixed overhead costs 384,000 384,000 384,000 Total overhead $ 816,000 $ 960,000 $ 1,104,000 Whitlock expects to spend $400,000 in direct materials costs over the entire year. The following information is for May, when Jobs WM-52 and WM-53 were completed: Inventories, May 1 Materials and supplies $ 2,600 Work in process (Job WM-52) 13,500 Finished goods 28,100 Purchases of materials and supplies Materials $ 33,800 Supplies 3,800 Materials and supplies requisitioned for production Job WM-52 $ 11,300 Job WM-53 9,400 Job WM-54 6,400 Supplies 1,500 $ 28,600 Factory direct labor-hours (DLH) Job WM-52 900 DLH Job WM-53 750 DLH Job WM-54 500 DLH Labor costs Direct labor wages (all hours @ $22.00) $ 47,300 Indirect labor wages (500 hours) 8,000 Supervisory salaries 9,000 Building occupancy costs (heat, light, depreciation, etc.) Factory facilities $ 22,500 Sales and administrative offices 10,500 Factory equipment costs Power $ 12,000 Repairs and maintenance 8,500 Other 11,500 $ 32,000 Required: Compute the predetermined overhead rate (combined fixed and variable) to be used to apply overhead to individual jobs during the year. (Note: Regardless of your answer to requirement [a], assume that the predetermined overhead rate is 225% of direct materials cost. Use this rate in answering requirements [b] through [f], as needed.) Compute the total cost of Job WM-52 when it is finished. How much of factory overhead cost was applied to Job WM-54 during May? What total amount of overhead was applied to jobs during May? Compute actual factory overhead incurred during May. At the end of the year, Whitlock Manufacturing had the following account balances: Underapplied overhead $ 48,000 Work-in-process inventory 19,800 Finished goods inventory 176,300 Cost of goods sold 1,803,900 Assuming that the underapplied overhead is not material, show the new account balances in the following table.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Whitlock Manufacturing uses a
| Direct materials costs | $ 300,000 | $ 400,000 | $ 500,000 |
|---|---|---|---|
| Variable overhead costs | $ 432,000 | $ 576,000 | $ 720,000 |
| Fixed overhead costs | 384,000 | 384,000 | 384,000 |
| Total overhead | $ 816,000 | $ 960,000 | $ 1,104,000 |
Whitlock expects to spend $400,000 in direct materials costs over the entire year. The following information is for May, when Jobs WM-52 and WM-53 were completed:
| Inventories, May 1 | |
|---|---|
| Materials and supplies | $ 2,600 |
| Work in process (Job WM-52) | 13,500 |
| Finished goods | 28,100 |
| Purchases of materials and supplies | |
| Materials | $ 33,800 |
| Supplies | 3,800 |
| Materials and supplies requisitioned for production | |
| Job WM-52 | $ 11,300 |
| Job WM-53 | 9,400 |
| Job WM-54 | 6,400 |
| Supplies | 1,500 |
| $ 28,600 |
| Factory direct labor-hours (DLH) | |
|---|---|
| Job WM-52 | 900 DLH |
| Job WM-53 | 750 DLH |
| Job WM-54 | 500 DLH |
| Labor costs | |
|---|---|
| Direct labor wages (all hours @ $22.00) | $ 47,300 |
| Indirect labor wages (500 hours) | 8,000 |
| Supervisory salaries | 9,000 |
| Building occupancy costs (heat, light, |
|
| Factory facilities | $ 22,500 |
| Sales and administrative offices | 10,500 |
| Factory equipment costs | |
| Power | $ 12,000 |
| Repairs and maintenance | 8,500 |
| Other | 11,500 |
| $ 32,000 |
Required:
-
Compute the predetermined overhead rate (combined fixed and variable) to be used to apply overhead to individual jobs during the year.
(Note: Regardless of your answer to requirement [a], assume that the predetermined overhead rate is 225% of direct materials cost. Use this rate in answering requirements [b] through [f], as needed.)
-
Compute the total cost of Job WM-52 when it is finished.
-
How much of
factory overhead cost was applied to Job WM-54 during May? -
What total amount of overhead was applied to jobs during May?
-
Compute actual factory overhead incurred during May.
-
At the end of the year, Whitlock Manufacturing had the following account balances:
| Underapplied overhead | $ 48,000 |
|---|---|
| Work-in-process inventory | 19,800 |
| Finished goods inventory | 176,300 |
| Cost of goods sold | 1,803,900 |
Assuming that the underapplied overhead is not material, show the new account balances in the following table.
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