Ch 05 Job Costing

Job-Order Costing

Types of Costing Systems Used to Determine Product Costs

ProcessCosting

Job-orderCosting

Widely used in services (accounting, law, medicine),as well as in manufacturing.

Products or services are manufactured to order.

Cost are traced or allocated to jobs.

Cost records must be maintained for each distinct product or job.

Widely used in services (accounting, law, medicine),as well as in manufacturing.

Products or services are manufactured to order.

Cost are traced or allocated to jobs.

Cost records must be maintained for each distinct product or job.

Chapter 6Chapter 6

PearCo Job Cost Sheet

Job Number A - 143 Date Initiated 3-4-01Date Completed

Department B3 Units CompletedItem Wooden cargo crate

Direct Materials Direct Labor Manufacturing OverheadReq. No. Amount Ticket Hours Amount Hours Rate Amount

Cost Summary Units ShippedDirect Materials Date Number BalanceDirect LaborManufacturing OverheadTotal CostUnit Product Cost

Job-Order Cost Accounting




Apply manufacturing overhead to jobs using a predetermined overhead rate of $4 per direct

labor hour (DLH).Let’s do it


Estimated total manufacturingoverhead cost for the coming period

Estimated total units in theallocation base for the coming period

POHR =

The predetermined overhead rate (POHR) used to apply overhead to jobs is determined

before the period begins.

Application of Manufacturing Overhead

Ideally, the allocation base is a cost driver that causes

overhead to vary.

Ideally, the allocation base is a cost driver that causes

overhead to vary.

The allocation base must be traceable to the

individual jobs.

The allocation base must be traceable to the

individual jobs.

Actual amount of the allocation base such as units produced, direct labor hours, or machine

hours incurred during the period.

Actual amount of the allocation base such as units produced, direct labor hours, or machine

hours incurred during the period.

Based on estimates, and determined before the

period begins.

Based on estimates, and determined before the

period begins.

Application of Manufacturing Overhead

Overhead applied = POHR × Actual activity

For each direct labor hour worked on a job, $4.00 of factory overhead will be

applied to the job.

For each direct labor hour worked on a job, $4.00 of factory overhead will be

applied to the job.

Overhead Application Example

POHR = $4.00 per DLH

$640,000

160,000 direct labor hours (DLH)POHR =

Estimated total manufacturingoverhead cost for the coming period

Estimated total units in theallocation base for the coming period

POHR =



Raw MaterialsMaterial

Purchases

Mfg. Overhead

Work in Process(Job Cost Sheet)Direct

Materials Direct Materials

Indirect Materials

Indirect Materials

Actual Applied

Job-Order System Cost Flows

Mfg. Overhead

Payroll SuspenseWork in Process(Job Cost Sheet)

Direct

Materials

Overhead Applied

OverheadApplied to

Work inProcess

Direct Labor

Direct Labor

IndirectLabor

IndirectLabor

Indirect Materials

Actual AppliedIf actual and applied

manufacturing overheadare not equal, a year-end adjustment is required.

If actual and applied manufacturing overheadare not equal, a year-end adjustment is required.


TotalFactoryPayroll

Finished Goods(Job cost sheets)

Cost ofGoodsMfd.

Cost ofGoodsMfd.

Cost of Goods Sold (Job cost sheets)

Work in Process(Job cost sheets)

Direct

MaterialsDirect Labor

Overhead Applied

Cost ofGoodsSold

Cost ofGoodsSold


Individual job cardsare subsidiary ledgers for each of these control accounts.

Plantwide Overhead Rate

Companies tend to use direct labordirect labor as the overhead allocation base.

Departmental Overhead Rates

A two-stage process isnecessary because different

departments may have different cost drivers.

Finishing DepartmentFinishing Department

Shipping DepartmentShipping Department

Painting DepartmentPainting Department


Cost poolsCost pools

Stage One:Stage One:Costs assignedCosts assignedto poolsto pools

IndirectIndirectLaborLabor

IndirectIndirectMaterialsMaterials

OtherOtherOverheadOverhead

Department1

Department2

Department3


Department1

Department2

Department3

Products

Cost poolsCost pools

Direct Labor Hours

MachineHours

RawMaterials

Cost

Stage One:Stage One:Costs assignedCosts assignedto poolsto pools

Stage Two:Stage Two:Costs appliedCosts appliedto productsto products

Departmental Allocation Bases

IndirectIndirectMaterialsMaterials

OtherOtherOverheadOverhead

IndirectIndirectLaborLabor

Handout 5 (a):

Job Order Costing, Overhead Allocations,

Journal Entries

Handout 5(a) Job order costing; overhead allocation; journal entries Deltoid Exercise Apparati, Inc. installs weight training equipment in health

clubs and private homes. The firm uses job order costing, and applies overhead

to specific jobs using a predetermined overhead rate (“normal” costing).

Deltoid uses direct labor dollars as a basis for setting a predetermined overhead

rate for the period. The firm has budgeted total direct labor costs of $1,200,000

and budgeted total overhead costs are $2,400,000. The firm had no beginning

inventories and experienced the following transactions and events in the current

period.

Provide journal entries to reflect the following events.(Note that the

predetermined overhead rate is 200% of direct labor dollars.)

(a) The firm purchased materials for $1,200,000. Of this amount, $800,000

was charged to job cards as direct materials, and $200,000 was charged

as indirect materials to factory overhead.

(a) The firm purchased materials for $1,200,000. Of this amount, $800,000 was

charged to job cards as direct materials, and $200,000 was charged as indirect

materials to factory overhead.

Dr. Materials inventory $1,200.000

Cr. Accounts payable $1,200,000

Dr. Work in process (direct materials) $800,000

Dr. Overhead control $200,000

Cr. Materials inventory $1,000,000

(b) Total payroll expenses for the period were $2,400,000,

comprised of $1,600,000 of direct labor charged to job cards,

and $800,000 of indirect labor charged to factory overhead.

(b) Total payroll expenses for the period were $2,400,000,

comprised of $1,600,000 of direct labor charged to job cards,

and $800,000 of indirect labor charged to factory overhead.

Dr. Payroll suspense $2,400.000

Cr. Sundry payables $2,400,000

Dr. Work in process (direct labor) $1,600,000


Cr. Payroll suspense $2,400,000

Dr. Work in process (applied overhead) $3,200,000

Cr. Overhead control $3,200,000

(c) Additional overhead expenses totaling $1,600,000 were incurred and charged

to factory overhead.

Dr. Overhead control $1,600,000

Cr. Sundry credits $1,600,000

(a) Direct labor costs of $400,000 are included in the ending work-in-process

inventory, and direct labor costs of $200,000 are included in the ending

finished goods inventory.

This information implies that the remaining direct labor costs of

$1,000,000 are included in cost of goods sold. In addition,

applied overhead equal to 200% of direct labor is included in

each of these three accounts (ending work in process, finished

goods and cost of goods sold).

(b) Direct material costs of $200,000 are included in the ending work-in-process

inventory, and direct material costs of $100,000 are included in the ending

finished goods inventory.

This information implies that $500,000 of direct materials are included in cost of goods sold.

Because there were no beginning inventories, and we know the amounts of direct materials, labor, and applied overhead during the period, as well as the ending balances in the inventories and cost of goods sold, we can determine the current manufacturing costs, cost of goods completed, over/ under applied overhead, and cost of goods sold. This information is shown in T- accounts below.

Italicized numbers are contained in the journal entries provided above. Non-italicized numbers are inferred given the journal entries and supplementary information above. Beg. $ -0- Beg. $ -0- $1,200,000 $800,000 DM $800,000 $4,200,000 $200,000 DL $1,600,000 OH $3,200,000 End. $200,000 * End. $1,400,000

Materials inventory Work in process inventory

Beg. $ -0- $3,000,000 $4,200,000 $3,500,000 * $3,500,000 * End. $700,000

Finished goods inventory Cost of goods sold Sales

$2,400,000 $1,600,000 $ 200,000 $3,200,000 $ 800,000 $ 800,000 $1,600,000 Bal. $600,000 (over-applied)

Payroll Overhead Control

*Composition and amounts of ending inventories and cost of sales: Cost component:

Work in process, end

Finished goods, end

Cost of goods sold

Total

Direct material $200,000 $100,000 $500,000 $800,000 Direct labor $400,000 $200,000 $1,000,000 $1,600,000 Applied OH $800,000 $400,000 $2,000,000 $3,200,000 Total * $1,400,000 * $700,000 * $3,500,000 $5,600,000

(f) Total sales for the period are $3,000,000.

Dr. Accounts receivable $3,000,000

Cr. Sales $3.000,000

(g) Goods completed are transferred to finished goods inventory:

Dr. Finished goods $4,200,000

Cr. Work in process $4,200,000

(h) Cost of sales is recognized before disposition of the overhead variance:

Dr. Cost of goods sold $3.500,000

Cr. Finished goods $3.500,000

Disposition of the overhead variance:

(1) Assume that overhead variances are charged (or credited) to cost of

goods sold, and determine: (a) valuation of the ending inventories; (b) cost of goods

sold; and (c) gross margin for the period. Provide a journal entry to close the overhead

variance balance.

Disposition of the overhead variance:

(1) Assume that overhead variances are charged (or credited) to cost of

goods sold, and determine: (a) valuation of the ending inventories; (b) cost of goods

sold; and (c) gross margin for the period. Provide a journal entry to close the overhead

variance balance.

If the entire overhead variance is credited to cost of goods sold, the

ending inventory valuations are as shown above (in the T-accounts),

and the cost of sales is reduced from $3,500,000 to $2,900,000.

Gross margin is $100,000 (sales of $3,000,000 less cost of sales of

$2,900,000).The journal entry is as follows:


Cr. Cost of goods sold $600,000

Re-do the calculations required in part (2) above assuming that Deltoid’s overhead variances are pro-rated to inventories and cost of sales based upon the amounts of applied overhead in the ending balances in these accounts (before the variances and the revenue and expense accounts are closed).

(2) Re-do the calculations required in part (2) above assuming that Deltoid’s overhead variances are

pro-rated to inventories and cost of sales based upon the amounts of applied overhead in the

ending balances in these accounts (before the variances and the revenue and expense accounts

are closed).

Account

Applied

overhead in

Ending balance

Percent of total

applied

overhead

Times over-applied

overhead of

$600,000

Work in process

inventory

$800,000

25.0%

$150,000

Finished goods

inventory

$400,000

12.5%

$ 75,000

Cost of goods sold $2,000,000 62.5% $375,000

Total $3,200,000 100.0% $600,000


Cr. Cost of goods sold $375,000

Cr. Work in process $150,000

Cr. Finished goods $75,000

If the overhead variance is apportioned among cost of goods sold and the ending inventories, the cost of sales is reduced from $3,500,000 to $3,125,000. Gross margin is a negative $125,000 (sales of $3,000,000 less cost of sales of $3,125,000).

Handout 5 (b):

Job Order Costing, Plant-wide and Departmental

Overhead Rates

This exercise demonstrates overhead applications using (a) a single plant-wide rate, (b) separate plant-wide rates for variable and fixed overheads, (c) departmental rates for variable and fixed overheads. The following budgeted and actual overhead data for the year 2008 has been prepared for Departments A and B, and in total for the entire manufacturing plant: Dept. A Dept. B Plant-wide Budgeted amounts at the start of the year: Fixed overhead $ 200,000 $ 400,000 $ 600,000 Variable overhead Direct labor hours

$ 200,000 160,000DLH

$ 600,000 40,000DLH

$ 800,000 200,000DLH

Actual amounts determined at the end of the year: Fixed overhead $ 200,000 $ 400,000 $ 600,000 Variable overhead Direct labor hours

$ 300,000 190,000DLH

$ 600,000 30,000DLH

$ 900,000 220,000DLH

Dept. A Dept. B Plant-wide Budgeted amounts at the start of the year: Fixed overhead $ 200,000 $ 400,000 $ 600,000 Variable overhead Direct labor hours

$ 200,000 160,000DLH

$ 600,000 40,000DLH

$ 800,000 200,000DLH


$ 300,000 190,000DLH

$ 600,000 30,000DLH

$ 900,000 220,000DLH

1. Assume that the company develops a single, plant-wide combined (fixed and variable) overhead rate for the period. Determine the plant-wide overhead rate, the applied overhead, and the amount of over-/under-applied overhead for the period.


$ 200,000 160,000DLH

$ 600,000 40,000DLH

$ 800,000 200,000DLH


$ 300,000 190,000DLH

$ 600,000 30,000DLH

$ 900,000 220,000DLH

1. Assume that the company develops a single, plant-wide combined (fixed and variable) overhead rate for the period. Determine the plant-wide overhead rate, the applied overhead, and the amount of over-/under-applied overhead for the period.

POHR = Budgeted total overhead / Budgeted DLH = $1,400,000 / 200,000DLH = $7.00 Applied OH = POHR x Actual DLH = $7.00 x 220,000DLH = $1,540,000 Under/over applied overhead = Actual OH – Applied OH = $1,500,000 - $1,540,000 = $40,000 over-applied


$ 200,000 160,000DLH

$ 600,000 40,000DLH

$ 800,000 200,000DLH


$ 300,000 190,000DLH

$ 600,000 30,000DLH

$ 900,000 220,000DLH

2. Assume that the company develops separate plant-wide overhead rates for variable and fixed overheads. Determine the predetermined rates, the applied overheads, and the amounts of over-/under-applied overhead for both variable and fixed overhead.


$ 200,000 160,000DLH

$ 600,000 40,000DLH

$ 800,000 200,000DLH


$ 300,000 190,000DLH

$ 600,000 30,000DLH

$ 900,000 220,000DLH


Variable overhead: PVOHR = Budgeted variable overhead / Budgeted DLH = $800,000 / 200,000DLH = $4.00 Applied VOH = PVOHR x Actual DLH = $4.00 x 220,000DLH = $880,000 Under/over applied variable overhead = Actual VOH – Applied VOH = $900,000 - $880,000 = $20,000 under-applied


$ 200,000 160,000DLH

$ 600,000 40,000DLH

$ 800,000 200,000DLH


$ 300,000 190,000DLH

$ 600,000 30,000DLH

$ 900,000 220,000DLH


Variable overhead: PVOHR = Budgeted variable overhead / Budgeted DLH = $800,000 / 200,000DLH = $4.00 Applied VOH = PVOHR x Actual DLH = $4.00 x 220,000DLH = $880,000 Under/over applied variable overhead = Actual VOH – Applied VOH = $900,000 - $880,000 = $20,000 under-applied

Fixed overhead: PFOHR = Budgeted fixed overhead / Budgeted DLH = $600,000 / 200,000DLH = $3.00 Applied FOH = PFOHR x Actual DLH = $3.00 x 220,000DLH = $660,000 Under/over applied fixed overhead = Actual FOH – Applied FOH = $600,000 - $660,000 = $60,000 over-applied

Note: The under-applied variable overhead of $20,000 plus the over-applied fixed overhead of $60,000 add

up to the total over-applied overhead of $40,000 determined using the combined rate in part 1, above.


$ 200,000 160,000DLH

$ 600,000 40,000DLH

$ 800,000 200,000DLH


$ 300,000 190,000DLH

$ 600,000 30,000DLH

$ 900,000 220,000DLH

3. Assume that the company develops combined (fixed and variable) predetermined overhead

rates separately for each of the two departments. Determine the departmental overhead rates, the applied overhead, and the amount of over-/under-applied overhead in each department for the period.


$ 200,000 160,000DLH

$ 600,000 40,000DLH

$ 800,000 200,000DLH


$ 300,000 190,000DLH

$ 600,000 30,000DLH

$ 900,000 220,000DLH



Department A: POHR = Budgeted total overhead / Budgeted DLH = $400,000 / 160,000DLH = $2.50 Applied OH = POHR x Actual DLH = $2.50 x 190,000DLH = $475,000 Under/over applied overhead = Actual OH – Applied OH = $500,000 - $475,000 = $25,000 under-applied


$ 200,000 160,000DLH

$ 600,000 40,000DLH

$ 800,000 200,000DLH


$ 300,000 190,000DLH

$ 600,000 30,000DLH

$ 900,000 220,000DLH



Department A: POHR = Budgeted total overhead / Budgeted DLH = $400,000 / 160,000DLH = $2.50 Applied OH = POHR x Actual DLH = $2.50 x 190,000DLH = $475,000 Under/over applied overhead = Actual OH – Applied OH = $500,000 - $475,000 = $25,000 under-applied

Department B: POHR = Budgeted total overhead / Budgeted DLH = $1,000,000 / 40,000DLH = $25.00 Applied OH = POHR x Actual DLH = $25.00 x 30,000DLH = $750,000 Under/over applied overhead = Actual OH – Applied OH = $1,000,000 - $750,000 = $250,000 under-applied


$ 200,000 160,000DLH

$ 600,000 40,000DLH

$ 800,000 200,000DLH


$ 300,000 190,000DLH

$ 600,000 30,000DLH

$ 900,000 220,000DLH

4. Contrast the total amounts of applied overheads and over-/under absorbed overheads that you determined in answering the questions above. Which amounts provide more useful information to managers?

Note that the actual total overhead for the two departments combined is

$1,500,000, and the total applied overhead is $1,225,000. The total under-applied

overhead is therefore $275,000. This reveals a significantly more negative variance

than was apparent using a single plant-wide rate to absorb overhead. The underlying

reason for the disparate measurements is because the overhead rates differ

substantially between the departments, and the department with the higher rate had

lower production (fewer labor hours) than were budgeted. Consequently, that higher-

rate department should have had a large reduction in variable overhead spending, but

that reduction apparently was not realized.

5. Assume that the company is developing a bid price for a special customer order. The project is estimated to require 20,000 direct labor hours. Determine the total variable overhead that would be estimated for the project based on plant-wide and departmental overhead rates, under each of the following assumptions:

(a) The 20,000 required direct labor hours would consist of

16,000 hours in Department A and 4,000 hours in Department B. Explain any difference between the overhead assignments using plant-wide vs. departmental rates.




First, we determine that the departmental variable overhead rate is $1.25 in Department A ($200,000 / 160,000DLH), and is $15.00 in Department B ($600,000 / 40,000DLH).


$ 200,000 160,000DLH

$ 600,000 40,000DLH

$ 800,000 200,000DLH


$ 300,000 190,000DLH

$ 600,000 30,000DLH

$ 900,000 220,000DLH




First, we determine that the departmental variable overhead rate is $1.25 in Department A ($200,000 / 160,000DLH), and is $15.00 in Department B ($600,000 / 40,000DLH).

Plant-wide rate: 20,000DLH x $4.00 = $80,000 Departmental rates: A: 16,000DLH x $1.25 = $20,000 B: 4,000DLH x $15.00 = $60,000 TOTAL = $80,000 There is no difference in the two estimates of variable overhead because the required labor

hours are distributed across the two departments in the same proportions as are the plant-wide

labor hours. Note that 80% (20%) of the plant-wide total labor hours are budgeted for

Department A (B). The special customer order also requires 80% (20%) of its labor hours in

Department A (B).

(b) The 20,000 required direct labor hours would consist of 10,000 hours in Department A and 10,000 hours in Department B. Explain any difference between the overhead assignments using plant-wide vs. departmental rates.

Plant-wide rate: 20,000DLH x $4.00 = $80,000 Departmental rates: A: 10,000DLH x $1.25 = $ 12,500 B: 10,000DLH x $15.00 = $150,000 TOTAL = $162,500

In this case, the required labor hours are disproportionately incurred in the

higher-cost department. Because of this feature, the use of departmental rates

will provide a substantially higher estimate of variable overhead. Use of a plant-

wide overhead rate would result in an under-estimate of variable overhead in the

amount of $82,500 ($162,500 - $80,000).

6. Assume that the company has entered a “cost plus” contract with the U.S. government that provides re-imbursement of full (i.e., fixed plus variable) costs plus a mark-on of 25% above cost. The contract is expected to require 40,000 direct labor hours. Determine the total overhead reimbursement that would be received for this contract based on plant-wide and departmental overhead rates, under each of the following assumptions:

(a) The 40,000 required direct labor hours would consist of 32,000 hours in

Department A and 8,000 hours in Department B. Explain any difference between the overhead assignments using plant-wide vs. departmental rates.


$ 200,000 160,000DLH

$ 600,000 40,000DLH

$ 800,000 200,000DLH


$ 300,000 190,000DLH

$ 600,000 30,000DLH

$ 900,000 220,000DLH

6. Assume that the company has entered a “cost plus” contract with the U.S. government that provides re-imbursement of full (i.e., fixed plus variable) costs plus a mark-on of 25% above cost. The contract is expected to require 40,000 direct labor hours. Determine the total overhead reimbursement that would be received for this contract based on plant-wide and departmental overhead rates, under each of the following assumptions:

(a) The 40,000 required direct labor hours would consist of 32,000 hours in

Department A and 8,000 hours in Department B. Explain any difference between the overhead assignments using plant-wide vs. departmental rates.

(a) The 40,000 required direct labor hours would consist of 32,000 hours in Department A and 8,000 hours in Department B. Explain any difference between the overhead assignments using plant-wide vs. departmental rates.

Plant-wide rate: 40,000DLH x $7.00 = $280,000 Departmental rates: A: 32,000DLH x $2.50 = $80,000 B: 8,000DLH x $25.00 = $200,000 TOTAL = $280,000 There is no difference in the two estimates of overhead because the required labor

hours are distributed across the two departments in the same proportions as are the

plant-wide labor hours. Note that 80% (20%) of the plant-wide total labor hours are

budgeted for Department A (B). The government contract also requires 80% (20%) of

its labor hours in Department A (B).

(b) The 40,000 required direct labor hours would consist of 15,000 hours in Department A and 25,000 hours in Department B. Explain any difference between the overhead assignments using plant-wide vs. departmental rates.

Plant-wide rate: 40,000DLH x $7.00 = $280,000 Departmental rates: A: 15,000DLH x $2.50 = $37,500 B: 25,000DLH x $25.00 = $625,000 TOTAL = $662,500

In this case, the required labor hours are disproportionately incurred in the higher-

cost department. Because of this feature, the use of departmental rates will provide

a substantially higher application of overhead to the government contract. Use of a

plant-wide overhead rate would result in a lower application of overhead in the

amount of $382,500 ($662,500 - $280,000). Because costs are reimbursed at a 25%

mark-up, the company would receive a lower reimbursement in the amount of

$478,125 ($382,500 x 125%) if the plant-wide overhead rate were used to cost the

contract.

Handout 5(c)

Multiple choice items

1. Avery Co. uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. For the month of October, Avery's estimated manufacturing overhead cost was $300,000 based on an estimated activity level of 100,000 direct labor-hours. Actual overhead amounted to $325,000 with actual direct labor-hours totaling 110,000 for the month. How much was the overapplied or underapplied overhead? A. $25,000 overapplied B. $25,000 underapplied C. $5,000 overapplied D. $5,000 underapplied

1. Avery Co. uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. For the month of October, Avery's estimated manufacturing overhead cost was $300,000 based on an estimated activity level of 100,000 direct labor-hours. Actual overhead amounted to $325,000 with actual direct labor-hours totaling 110,000 for the month. How much was the overapplied or underapplied overhead? A. $25,000 overapplied B. $25,000 underapplied C. $5,000 overapplied D. $5,000 underapplied

The POHR is $3.00 ($300,000 / 100,000dlh).

Applied OH = $330,000 ($3 x 110,000dlh).

Overapplied OH = $5,000 ($325,000 - $330,000)

2. Woodman Company uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. Estimated and actual data for direct labor and manufacturing overhead for last year are as follows:

The manufacturing overhead for Woodman Company for last year was: A. overapplied by $20,000 B. overapplied by $40,000 C. underapplied by $20,000 D. underapplied by $40,000

2. Woodman Company uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. Estimated and actual data for direct labor and manufacturing overhead for last year are as follows:

The manufacturing overhead for Woodman Company for last year was: A. overapplied by $20,000 B. overapplied by $40,000 C. underapplied by $20,000 D. underapplied by $40,000

POHR = $1.20 ($720,000 / 600,000dlh).

Applied OH = $660,000 ($1.20 x 550,000).

Under-applied OH = $20,000 ($680,000 - $660,000).

3. Darrow Company uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. Last year, the company worked 10,000 direct labor-hours and incurred $80,000 of actual manufacturing overhead cost. If overhead was underapplied by $2,000, the predetermined overhead rate for the company for the year must have been: A. $7.80 B. $8.00 C. $8.20 D. $8.40

3. Darrow Company uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. Last year, the company worked 10,000 direct labor-hours and incurred $80,000 of actual manufacturing overhead cost. If overhead was underapplied by $2,000, the predetermined overhead rate for the company for the year must have been: A. $7.80 B. $8.00 C. $8.20 D. $8.40

Actual overhead of $80,000 is underapplied by $2,000 so applied overhead is $78,000. The activity is 10,000dlh, implying a POHR of $7.80 ($78,000 / 10,000).

Ch 05 Job Costing

Documents

job cost sheets cost

cost records

process job cost sheets

applied cost of goods

applied manufacturing

indirect overhead materials

factory overhead

overhead allocation