Chapter 17, Problem 4BP

a.

To determine

Calculate the overhead rate that should be used for each department in applying overhead costs to job no. 399.

Explanation of Solution

Calculate overhead rate for department A.

$\begin{array}{c}\text{Overhead application rate =}\frac{\text{Manufacturing overhead}}{\text{Machine hours}}\\ =\frac{\$810,000}{16,200}\\ =\$50\text{per machine hour}\end{array}$

Calculate overhead rate for department B.

$\begin{array}{c}\text{Overhead application rate =}\frac{\text{Manufacturing overhead}}{\text{Direct labor hours}}\\ =\frac{\$620,000}{24,800}\\ =\$25\text{per direct labor hour}\end{array}$

b.

To determine

Calculate the total cost of job no.652, and calculate the unit cost of the product manufactured on this production order.

Explanation of Solution

Calculate the total cost of job no.652, and calculate the unit cost of the product manufactured on this production order as shown below:

Job No. 652
Particulars	Department A (1)	Department B (2)	Total (1+2)
Direct materials	$19,000	$1,750	$20,750
Direct labor	$1,500	$750	$2,250
Manufacturing overhead
	$9,000	$1,000	$10,000
Total cost of job no. 399			$33,000
Unit cost			$33

Table (1)

Working notes:

Calculate manufacturing overhead amount for Department A.

$\begin{array}{c}\text{Manufacturing overhead =}\text{Machine hours}\times \text{Overhead rate}\\ \text{=}180\text{hours}\times \text{\$50}\text{per hour}\\ \text{=}\text{\$9,000}\end{array}$ (1)

Calculate manufacturing overhead amount for department B.

$\begin{array}{c}\text{Manufacturing overhead}\text{=}\text{Direct labor hours}\times \text{Overhead rate}\\ \text{=}40\text{direct labor hours}\times \text{\$25}\text{per hour}\\ \text{=}\text{\$1,000}\end{array}$ (2)

Calculate unit cost.

$\begin{array}{c}\text{Unit cost}\text{=}\frac{\text{Total cost of Job no}\text{.399}}{\text{Number of units}}\\ =\frac{\$33,000}{1,000\text{units}}\\ =\$33\text{cost per unit}\end{array}$ (3)

c.

To determine

Prepare journal entry to record sale on account.

Explanation of Solution

Prepare journal entry to record sale on account of 1,000 circuit boards.

Account titles and Explanation	Debit	Credit
Accounts receivable	$50,000
Sales		$50,000
(To record credit sales in march)

Table (2)

• Accounts receivable is a current asset, and it is increased. Therefore, debit accounts receivable account for $50,000.
• Sales is a component of stockholders’ equity, and it is increased. Therefore, credit sales account for $50,000.

Prepare journal entry to record cost of goods sold.

Account titles and Explanation	Debit	Credit
Cost of goods sold	$33,000
Finished goods inventory		$33,000
(To record cost of units sold during march)

Table (3)

Working note:

Calculate cost of goods sold.

$\begin{array}{c}\text{Cost of goods sold}\text{=}\text{sold units }\times \text{unit cost}\\ \text{=}\text{1,000}\text{units }\times \text{\$33}\\ \text{=}\text{\$33,000}\end{array}$ (4)

• Cost of goods sold is a component of stockholders’ equity, and it is decreased. Therefore, debit cost of goods sold account for $33,000.
• Finished goods inventory is a current asset, and it is decreased. Therefore, credit finished goods inventory account for $33,000.

d.

To determine

Calculate over-under applied overhead in each department during the year.

Explanation of Solution

Calculate over-under applied overhead in department A.

$\begin{array}{c}\text{Over}\text{applied overhead}\text{=}\text{Applied overhead}-\text{Actual overhead }\\ \text{=}\left(16,500\text{ direct labor hours}\times \text{\$50}\text{per hour}\right)-\text{\$800,000}\\ =\$825,000-\$800,000\\ =\$25,000\end{array}$

Calculate over-under applied overhead in department B.

$\begin{array}{c}\text{Under}\text{applied overhead}\text{=}\text{Actual overhead }-\text{Applied overhead}\\ \text{=}\text{\$615,000}-\left(24,000\text{ machine hours}\times \text{\$25}\text{per hour}\right)\\ =\$615,000-\$600,000\\ =\$15,000\end{array}$