Chapter 4, Problem 15P

The following information, taken from the books of Herman Brothers Manufacturing represents the operations for January:

The job cost system is used, and the February cost sheet for Job M45 shows the following:

The following actual information was accumulated during February:

Required:

1. 1. Using the January data, ascertain the predetermined factory overhead rates to be used during February, based on the following:
   1. a. Direct labor cost
   2. b. Direct labor hours
   3. c. Machine hours
2. 2. Prepare a schedule showing the total production cost of Job M45 under each method of applying factory overhead.
3. 3. Prepare the entries to record the following for February operations:
   1. a. The liability for total factory overhead.
   2. b. Distribution of factory overhead to the departments.
   3. c. Application of factory overhead to the work in process in each department, using direct labor hours. (Use the predetermined rate calculated in Requirement 1.)
   4. d. Closing of the applied factory overhead accounts.
   5. e. Recording under- and overapplied factory overhead and closing the actual factory overhead accounts.

To determine

Ascertain the predetermined factory overhead rates to be used during February, based on the following:

1. a. Direct labor cost
2. b. Direct labor hours
3. c. Machine hours

Explanation of Solution

1. a. Compute the predetermined rate using direct labor cost:

$\begin{array}{c}\begin{array}{l}\text{Predetermined rates}\\ \text{for Bronzing}\end{array}\}=\frac{\text{Estimated overhead}}{\text{Estimated labor cost}}\\ =\frac{\$20,000}{\$8,000}\\ =250\%\end{array}$

$\begin{array}{c}\begin{array}{l}\text{Predetermined rates}\\ \text{for Casting}\end{array}\}=\frac{\text{Estimated overhead}}{\text{Estimated labor cost}}\\ =\frac{\$10,000}{\$5,000}\\ =200\%\end{array}$

$\begin{array}{c}\begin{array}{l}\text{Predetermined rates}\\ \text{for Finishing}\end{array}\}=\frac{\text{Estimated overhead}}{\text{Estimated labor cost}}\\ =\frac{\$16,200}{\$9,000}\\ =180\%\end{array}$

1. b. Compute the predetermined rate using direct labor hour rate:

$\begin{array}{c}\begin{array}{l}\text{Predetermined rates}\\ \text{for Bronzing}\end{array}\}=\frac{\text{Estimated overhead}}{\text{Estimated labor hour}}\\ =\frac{\$20,000}{1,000}\\ =\$20\end{array}$

$\begin{array}{c}\begin{array}{l}\text{Predetermined rates}\\ \text{for Casting}\end{array}\}=\frac{\text{Estimated overhead}}{\text{Estimated labor hour}}\\ =\frac{\$10,000}{500}\\ =\$20\end{array}$

$\begin{array}{c}\begin{array}{l}\text{Predetermined rates}\\ \text{for Finishing}\end{array}\}=\frac{\text{Estimated overhead}}{\text{Estimated labor hour}}\\ =\frac{\$16,200}{1,620}\\ =\$10\end{array}$

1. c. Compute the predetermined rate using machine hour rate:

$\begin{array}{c}\begin{array}{l}\text{Predetermined rates}\\ \text{for Bronzing}\end{array}\}=\frac{\text{Estimated overhead}}{\text{Estimated machine hours}}\\ =\frac{\$20,000}{4,000}\\ =\$5\end{array}$

$\begin{array}{c}\begin{array}{l}\text{Predetermined rates}\\ \text{for Casting}\end{array}\}=\frac{\text{Estimated overhead}}{\text{Estimated machine hours}}\\ =\frac{\$10,000}{5,000}\\ =\$2\end{array}$

$\begin{array}{c}\begin{array}{l}\text{Predetermined rates}\\ \text{for Finishing}\end{array}\}=\frac{\text{Estimated overhead}}{\text{Estimated machine hours}}\\ =\frac{\$16,200}{2,025}\\ =\$8\end{array}$

To determine

Prepare a schedule showing the total production cost of Job M45 under each method of applying factory overhead.

Explanation of Solution

Prepare a schedule showing the total production cost of Job M45 under each method of applying factory overhead:

Cost of Production
Job M45—Direct Labor Cost Method	Bronzing	Casting	Finishing	Total
Materials	$ 20.00	$ 40.00	$ 20.00	$ 80.00
Direct labor cost	64	60	54	178
Factory overhead:
$\left(\text{250\%}\times \$64\right)$	160
$\left(\text{200\%}\times \$60\right)$		120
$\left(\text{180\%}\times \$54\right)$			97.2
Total				377.2
Total production cost	$ 244.00	$ 220.00	$ 171.20	$ 635.20

Table (1)

Cost of Production
Job M45—Direct Labor Hour Method	Bronzing	Casting	Finishing	Total
Materials	$ 20	$ 40	$ 20	$ 80
Direct labor cost	64	60	54	178
Factory overhead:
$\left(\text{\$20}\times 8\right)$	160
$\left(\text{\$20}\times 6\right)$		120
$\left(\text{\$10}\times 6\right)$			60
Total				340
Total production cost	$ 244	$ 220	$ 134	$598

Table (2)

Cost of Production
Job M45—Machine Hour Method	Bronzing	Casting	Finishing	Total
Materials	$ 20	$ 40	$ 20	$ 80
Direct labor cost	64	60	54	178
Factory overhead:
$\left(\text{\$5}\times 2\right)$	10
$\left(\text{\$2}\times 3\right)$		6
$\left(\text{\$8}\times 1\right)$			8
Total				24
Total production cost	$94	$106	$82	$282

Table (3)

To determine

Prepare journal entries to record the given transaction for February operations.

Explanation of Solution

Prepare journal entries to record the given transaction for February operations:

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
a.	Factory Overhead $\left(\$35,000+\$22,000+\$32,500\right)$		89,500
	Accounts Payable			89,500
	(To record the Factory Overhead)
b.	Factory Overhead-Bronzing		35,000
	Factory Overhead-Casting		22,000
	Factory Overhead-Finishing		32,500
	Factory Overhead			89,500
	(To record the distribution of total factory overhead cost to other departments.)
c.	Work in Process		69,600
	Applied Factory Overhead- Bronzing $\left(\$20\times 1,500\right)$			30,000
	Applied Factory Overhead- Casting $\left(\$20\times 980\right)$			19,600
	Applied Factory Overhead- Finishing $\left(\$10\times 2,000\right)$			20,000
	(To record the work in process)
d.	Applied Factory Overhead- Bronzing		30,000
	Applied Factory Overhead- Casting		19,600
	Applied Factory Overhead- Finishing		20,000
	Factory Overhead-Bronzing			30,000
	Factory Overhead-Casting			19,600
	Factory Overhead-Finishing			20,000
	(To record the applied factory overhead)
e	Under- and Over applied Overhead		19,900
	Factory Overhead-Bronzing $\left(\$35,000-\$30,000\right)$			5,000
	Factory Overhead-Casting $\left(\$22,000-\$19,600\right)$			2,400
	Factory Overhead-Finishing $\left(\$32,500-\$20,000\right)$			12,500
	(To record the Under- and Over applied overhead)

Table (4)