At the beginning of the year, Learer Company’s manager estimated total direct labor cost assuming 30 persons working an average of 2,000 hours each at an average wage rate of $40 per hour. The manager also estimated the following manufacturing overhead costs for the year. Indirect labor $ 334,200 Factory supervision 143,000 Rent on factory building 155,000 Factory utilities 103,000 Factory insurance expired 83,000 Depreciation—Factory equipment 412,000 Repairs expense—Factory equipment 75,000 Factory supplies used 83,800 Miscellaneous production costs 51,000 Total estimated overhead costs $ 1,440,000 At year-end, records show the company incurred $1,592,000 of actual overhead costs. It completed and sold five jobs with the following direct labor costs: Job 201, $619,000; Job 202, $578,000; Job 203, $313,000; Job 204, $731,000; and Job 205, $329,000. In addition, Job 206 is in process at the end of the year and had been charged $32,000 for direct labor. No jobs were in process at the beginning of the year. The company’s predetermined overhead rate is based on direct labor cost. Required 1. Determine the predetermined overhead rate for the year. 2. Determine the total overhead cost applied to each of the six jobs during the year. 3. Determine the over-or underapplied overhead at the year-end. 4. Assuming that any over-or underapplied overhead is not material, prepare the adjusting entry to allocate any over-or underapplied overhead to Cost of Goods Sold at the end of the year.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
At the beginning of the year, Learer Company’s manager estimated total direct labor cost assuming 30 persons working an average of 2,000 hours each at an average wage rate of $40 per hour. The manager also estimated the following
| Indirect labor | $ | 334,200 | |
| Factory supervision | 143,000 | ||
| Rent on factory building | 155,000 | ||
| Factory utilities | 103,000 | ||
| Factory insurance expired | 83,000 | ||
| Depreciation—Factory equipment | 412,000 | ||
| Repairs expense—Factory equipment | 75,000 | ||
| Factory supplies used | 83,800 | ||
| Miscellaneous production costs | 51,000 | ||
| Total estimated overhead costs | $ | 1,440,000 | |
At year-end, records show the company incurred $1,592,000 of actual overhead costs. It completed and sold five jobs with the following direct labor costs: Job 201, $619,000; Job 202, $578,000; Job 203, $313,000; Job 204, $731,000; and Job 205, $329,000. In addition, Job 206 is in process at the end of the year and had been charged $32,000 for direct labor. No jobs were in process at the beginning of the year. The company’s predetermined overhead rate is based on direct labor cost.
Required
1. Determine the predetermined overhead rate for the year.
2. Determine the total overhead cost applied to each of the six jobs during the year.
3. Determine the over-or underapplied overhead at the year-end.
4. Assuming that any over-or underapplied overhead is not material, prepare the
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