Lincoln Estates manufactures log homes to customers’ specifications and uses job order costing. A predetermined overhead rate is used in applying manufacturing overhead to individual jobs. In the Cutting Department, overhead is applied on the basis of machine-hours. In the Assembly Depart- ment, overhead is applied on the basis of direct labor hours. At the beginning of the current year, management made the following estimates to assist in determining the overhead application rates:

 

 

  Annual Estimates	Cutting Department	Assembly Department
Direct labor cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$800,000	$960,000
Direct labor hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	40,000	32,000
Manufacturing overhead. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$600,000	$480,000
Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30,000	15,000

 

Production of a home ordered by Cliff Newton (job no. 80) was started early in the year and completed at the end of the first quarter, on March 31. The records for this job show the following cost information:

 

 

 

 

 

Job order for Cliff Newton ( job no. 80):

 

Cutting          Assembly Department Department

 

Direct materials cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           $100,000           $150,000

Direct labor cost  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             $10,000           $108,000

Direct labor hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                    500                 3,600

Machine-hours  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                    400                   300

 

Selected additional information for the first quarter is as follows:

 

Â	Cutting Department	Assembly Department
Direct labor hours—first quarter . . . . . . . . . . . . . . . . . . . . . . . . .	8,000	6,000
Machine-hours—first quarter  . . . . . . . . . . . . . . . . . . . . . . . . . . .	7,000	3,000
Manufacturing overhead incurred in first quarter . . . . . . . . . . . .	$142,000	$87,000

 

Instructions

a.      Compute the predetermined overhead rate for each department.

b.      What is the total cost of the home produced for Cliff Newton?

c.       Prepare the entries required to record the sale (on account) of the home to Cliff Newton. The sales price of the order was $602,000.

d.      Determine the over- or underapplied overhead for each department at the end of the first quarter.