EXHIBIT 29 Predetermined Overhead Allocation Rate Formula Predetermined

Exhibit 29 predetermined overhead allocation rate

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EXHIBIT 2.9Predetermined Overhead Allocation Rate FormulaPredetermined overhead rate5Estimatedoverhead costs4EstimatedactivitybaseRecording Allocated Overhead To illustrate, Road Warriors allocates overhead by linking it to direct labor. At the start of the current period, management predicts total direct la-bor costs of $125,000 and total overhead costs of $200,000. Using these estimates, management computes its predetermined overhead rate as 160% of direct labor cost ($200,000 4$125,000). Specifically, reviewing the job order cost sheet in Exhibit 2.2, we see that $1,000 of direct labor went into Job B15. We then use the predetermined overhead rate of 160% to allocate $1,600 (equal to $1,000 31.60) of overhead to this job. The entry to record this allocation isAssets 5Liabilities 1Equity11,600 11,600Mar. 11 Goods in Process Inventory  Job B15 . . . . . . . . . . . . . . 1,600Factory Overhead . . . . . . . . . . . . . . . . . . . . . . . . . . 1,600To assign overhead to Job B15.Example:If management predicts total direct labor costs of $100,000 and total overhead costs of $200,000, what is its predetermined overhead rate? Answer:200% of direct labor cost.Entries to record indirect materials and indirect labor follow:Factory Overhead . . . . . . . . . . . $Raw Materials Inventory . . . . $Factory Overhead . . . . . . . . . . . $Factory Payroll . . . . . . . . . . . . $In the subsidiary factory overhead ledger, these entries are posted to Indirect Materials and Indirect Labor, respectively.
Chapter 2 Job Order Costing and Analysis 57Since the allocation rate for overhead is estimated at the start of a period, the total amount as-signed to jobs during a period rarely equals the amount actually incurred. We explain how this difference is treated later in this chapter.Summary of Cost FlowsWe showed journal entries for charging Goods in Process Inventory (Job B15) with the cost of (1) direct materials requisitions, (2) direct labor time tickets, and (3) factory overhead. We made separate entries for each of these costs, but they are usually recorded in one entry. Specifically, materials requisitions are often collected for a day or a week and recorded with a single entry summarizing them. The same is done with labor time tickets. When summary entries are made, supporting schedules of the jobs charged and the types of materials used provide the basis for postings to subsidiary records.To show all production cost flows for a period and their related entries, we again look at Road Warriors’ activities. Exhibit 2.10 shows costs linked to all of Road Warriors’ produc-tion activities for March. Road Warriors did not have any jobs in process at the beginning of March, but it did apply materials, labor, and overhead costs to five new jobs in March. Jobs B15 and B16 are completed and delivered to customers in March, Job B17 is completed but not de-livered, and Jobs B18 and B19 are still in process. Exhibit 2.10 also shows purchases of raw materials for $2,750, labor costs incurred for $5,300, and overhead costs of $6,720.Point:Study the flow of manufacturing costs through general ledger accounts and job cost sheets. Use Exhibit 2.11 as reinforcement.ROAD WARRIORSJob Order Manufacturing CostsFor Month Ended March 31, 2013Goods Cost ofOverheadin Finished Goods

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