Chapter 2, Problem 5.3GBP

Recording Manufacturing Costs and Analyzing Manufacturing Overhead

Hamilton 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 $42,000.
b. Issued materials to production totaling $45,000, 85 percent of which was traced to specific jobs and the remainder of which was treated as indirect materials.
c. Payroll costs totaling $30,000 were recorded as follows:
$17,300 for assembly workers
8,400 for factory supervision
2,500 for administrative personnel
1,800 for sales commissions

d. Recorded depreciation: $9,000 for machines and $25,000 for the copier used in the administrative Office.
e. Recorded $9,000 of expired insurance. Sixty percent was insurance on the manufacturing facility, with the remainder classified as an administrative expense.
f. Paid $7,900 in other factory costs in cash.
g. Applied manufacturing overhead at a rate of 200 percent of direct labor cost.
h. Completed all jobs but one; the job cost sheet for this job shows $18,000 for direct materials.
$7,000 for direct labor, and $14,000 for applied overhead.
i. Solid jobs costing $40,000 during the period; the company adds a 25 percent markup on cost to determine the sales price.

Determine the amount of over- or underapplied overhead.