Chapter 2, Problem 5.3GAP

Recording Manufacturing Costs and Analyzing Manufacturing Overhead

Christopher's Custom Cabinet Company uses a job order cost system with overhead applied as a percentage of direct labor costs. Inventory balance at the beginning of 2016 follow:

The following transactions occurred during January:
a. Purchased materials on account for $26,000.
b. Issued materials to production totaling $40,000, 80 percent of which was traced to specific jobs and the remainder of which was treated as indirect materials.
c. Payroll costs totaling $69,700 were recorded as follows:

$18,000 for assembly workers
5,200 for factory supervision
31,000 for administrative personnel
15,500 for sales commissions

d. Recorded depreciation: $8,500 for machines, $2,400 for the copier used in the administrative Office.
e. Recorded $4,000 of expired insurance. Forty percent was insurance on the manufacturing facility, with the remainder classified as an administrative expense.
f. Paid $7,800 in other factory costs in cash.
g. Applied manufacturing overhead at a rate of 300 percent of direct labor cost.
h. Completed all jobs but one; the job cost sheet for this job shows $10,000 for direct materials.
$3,000 for direct labor, and $9,000 for applied overhead. i. Solid jobs costing $70,000. The revenue earned on these jobs was $91,000.

Required:
Determine the amount of over- or underapplied overhead.