Product Costing for Manufacturing Companies 4 33 Problem 4 28 continued e The

Product costing for manufacturing companies 4 33

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Product Costing for Manufacturing Companies 4-33 Problem 4-28, continued e. The amount of underapplied overhead is significant over 5% of total actual overhead. When the amount of over- or underapplied overhead is high, it is appropriate to prorate the amount to Work in Process Inventory, Finished Goods Inventory, and Cost of Goods Sold. Problem 4-29 a. Predetermined overhead rate = $15/DLH DLH 800 , 1 employees 0 2 61,200 9 $ = 540,000 $ 61,200 9 $ = 178% of direct labor cost Applied OH (35,000 DLH × $15/DLH × 178%) $ 934,500 Actual OH ( 1,130,000) Underapplied OH ($ 195,500) b. The amount of underapplied overhead is over 17% of total overhead ( $1,130,000 $195,500 ) and over 11% of total cost of goods sold ( $1,720,960 $195,500 ). Therefore, it is likely that the amount of underapplied overhead is material and w ll nfluence mana ers’ dec s ons. The underappl ed overhead should be prorated to finished goods and cost of goods sold.
Solutions for Davis & Davis, Managerial Accounting , 2 nd ed. 4-34 $
Chapter 4 Product Costing for Manufacturing Companies 4-35 Problem 4-30 a. Predetermined overhead rate = 000 500 1 $ ,050,000 1 $ , , = 70% of direct materials cost b. 1. Salaries Expense 438,000 Salaries Payable 438,000 To record salaries for president, vice-president, and corporate secretary ($225,000 + $178,000 + $35,000) 2. Manufacturing Overhead 112,000 Salaries Payable 112,000 To record indirect labor costs for factory manager, assistant factory manager, and two security guards ($40,000 + $32,000 + [$20,000 × 2]) 3. Work in Process Inventory 163,125 Manufacturing Overhead 55,800 Wages Payable 218,925 To record direct labor (5 machine operators × 2,250 DLH × $14.50/DLH) and indirect labor [(2 materials handlers × 2,000 DLH × $7.50/DLH) + (2 janitors × 2,150 DLH × $6.00/DLH)] 4. Depreciation Expense 17,500 Accumulated Depreciation 17,500 To record depreciation on administrative office equipment ([$650,000 - $125,000] ÷ 30) 5. Manufacturing Overhead 357,500 Accumulated Depreciation 357,500 To record depreciation on factory building and equipment ([($4,000,000 - $150,000) ÷ 20] + [($2,000,000 - $20,000) ÷ 12]) 6. Operating Expenses 11,000 Cash or Accounts Payable 11,000 To record administrative office utilities ($6,000) and office supplies ($5,000) expense Problem 4-30, continued