Allocation of Overhead

P9. Gyllstrom Products, Inc., uses a predetermined overhead rate in its production, assembly, and testing departments. One rate is used for the entire company; it is based on machine hours. The rate is determined by analyzing data from the previous year to determine the percentage change in costs. Thus this year’s overhead rate will be based on the percentage change multiplied by last year’s costs. The following data are available:

 

 

  Machine hours	Last year’s Costs      38,000
Overhead costs	Â
Indirect materials	$  58,000
Indirect labor	25,000
Supervision	41,000
Utilities	11,200
Labor-related costs	9,000
Depreciation, factory	10,500
Depreciation, machinery	27,000
Property taxes	3,000
Insurance	2,000
Miscellaneous overhead	5,000
Total overhead	$191,700

This year the cost of indirect materials is expected to increase by 30 percent over the previous year. The cost of indirect labor, utilities, machinery depreciation, property taxes, and insurance is expected to increase by 20 percent over the previous year. All other expenses are expected to increase by 10 percent over the previous year. Machine hours for this year are estimated at 45,858.

(Continued)

 

 

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reQUIreD

1.    Compute the projected costs, and use those costs to calculate the overhead rate for this year.

2.    During this year, the company completed the following jobs using the machine hours shown:

 

Job no.	Machine Hours	Job no.	Machine Hours
H–142	7,840	H–201	10,680
H–164	5,260	H–218	12,310
H–175	8,100	H–304	2,460

 

 

 

 

 

 

 

 

 

 

 

Determine the amount of overhead applied to each job. What was the total overhead applied during this year?

3.    Actual overhead costs for this year were $234,000. Was overhead underapplied or overapplied this year? By how much? Should the Cost of Goods Sold account be increased or decreased to reflect actual overhead costs?

4.    aCCoUNtING CoNNeCtIoN ▶  At what point during this year was the overhead rate computed? When was it applied? Finally, when was underapplied or overapplied over- head determined and the Cost of Goods Sold account adjusted to reflect actual costs?

Allocation of Overhead

P10. Fraser Products, Inc., which produces copy machines, has just completed packag- ing an order from Kent Company for 150 machines. Direct materials, purchased parts, and direct labor costs for the Kent order are as follows.

 

 

Cost of direct materials	$17,450
Cost of purchased parts	$14,800
Direct labor hours	140
Average direct labor pay rate	$16.50

Overhead costs were applied at a single, plantwide overhead rate of 240 percent of direct labor dollars.

reQUIreD

Compute the total cost of the Kent order.