Grand Island Brake Co. budgeted the following variable and fixed overhead costs for 2010:
Variable indirect labor ………………… $100,000
Variable indirect materials ………………... 20,000
Variable utilities …………………………… 80,000
Variable portion of other mixed costs …… 120,000
Fixed machinery depreciation ……………. 62,000
Fixed machinery lease payments ………… 13,000
Fixed machinery insurance ……………… 16,000
Fixed salaries ……………………………… 75,000
Fixed utilities ……………………………… 12,000
The company allocates overhead to production using machine hours. For 2010, machine hours have been budgeted at 40,000.
a. Determine the predetermined variable and fixed OH rates for Grand Island Brake Co. The company uses separate variable and fixed manufacturing overhead control accounts.
b. During 2010, the company used 43,000 machine hours during production and incurred a total of $273,600 of variable overhead costs and $185,680 of fixed overhead costs. Prepare journal entries to record the incurrence of the actual overhead costs and the application of overhead to production.
c. What amounts of underapplied or overapplied overhead exist at year-end 2010?
d. The company’s management believes that the fixed overhead amount calculated in part (a) should be considered immaterial. Prepare the entry to close the Fixed Overhead Control account at the end of the year.
e. Management believes that the variable overhead amount calculated in part (a) should be considered material and should be prorated to the appropriate accounts. At yearend, balances were as follows for inventory and Cost of Goods Sold accounts:
Raw Material Inventory ………………………….$25,000
Work in Process Inventory ………………………234,000
Finished Goods Inventory ……………………….390,000
Cost of Goods Sold …………………………….936,000
Prepare the entry to close the Variable Overhead Control account at the end of the year.