Exhibit 29 shows the usual formula for computing a

This preview shows page 11 - 13 out of 38 pages.

We have textbook solutions for you!
The document you are viewing contains questions related to this textbook.
Survey of Accounting
The document you are viewing contains questions related to this textbook.
Chapter 10 / Exercise E10-13
Survey of Accounting
Warren
Expert Verified
period. Exhibit 2.9 shows the usual formula for computing a predetermined overhead rate (estimates are commonly based on annual amounts). This rate is used during the period to allocate overhead to jobs. It is common for companies to use multiple activity (allocation) bases and multiple predetermined overhead rates for different types of products and services.Point:The predetermined overhead rate is computed at the start of the period and is used throughout the period to allocate overhead to jobs.Point:Predetermined overhead rates can be estimated using mathematical equations, statistical analysis, or professional experience.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 InventoryJob 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.
We have textbook solutions for you!
The document you are viewing contains questions related to this textbook.
Survey of Accounting
The document you are viewing contains questions related to this textbook.
Chapter 10 / Exercise E10-13
Survey of Accounting
Warren
Expert Verified
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-

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture