Question

In December 2016, West Corporation’s manager estimated next year’s total direct labor cost assuming 30 persons working an average of 2,000 hours each at an average wage rate of $20 per hour. The manager also estimated the following manufacturing overhead costs for 2017.

Indirect labor	$100,000
Factory supervision	50,000
Rent on factory building	120,000
Factory utilities	50,000
Factory insurance	25,000
Depreciation – factory equipment	300,000
Repairs expense – factory equipment	100,000
Factory supplies used	25,000
Miscellaneous production costs	30,000
Total estimated overhead costs	$800,000

At the end of 2017, records show that the company incurred $825,000 of actual overhead costs. It completed and sold five jobs with the following direct labor costs: Job 720, $280,000; Job 721, $250,000; Job 722, $140,000; Job 723, $330,000; Job 724, $150,000. In addition, Job 725 is in process at the end of 2017 and had been charged $30,000 of direct labor. Direct material costs for each of the jobs were as follows: Job 720, $200,000; Job 721, 150,000; Job 722 100,000; Job 723, 250,000; Job 724 125,000; Job 725, 140,000. No jobs were in the process at the end of 2016. The company’s predetermined overhead rate is based on direct labor cost.

Required

Determine the predetermined overhead rate for 2017.

Determine the total overhead cost applied to each of the six jobs during 2017.

Determine the total cost of each of the six jobs at the end of 2017.

Determine the dollar amount that would be transferred from work in process inventory to finished goods inventory and ultimately to cost of goods sold in 2017.

Determine the dollar amount that would remain in work in process inventory at the end of 2017

Determine the over-or under-applied overhead at the end of 2017.

How would you recommend closing out the over- or under-applied overhead?

Answer 1

The predetermined over head rate for 2017 is 800000/1200000 = 0.67 per rupee