Question & Answer: *** 1. Pretermined overhead rate for this year: $5.00 per machine hour. *** 3. Underapplied overhead: $750.00…..

*** 1. Pretermined overhead rate for this year: $5.00 per machine hour. *** 3. Underapplied overhead: $750.00

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 years overhead rate will be based on the percentage change multiplied by last years’ costs. The following data are available:

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Question & Answer: *** 1. Pretermined overhead rate for this year: $5.00 per machine hour. *** 3. Underapplied overhead: $750.00…..
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Last Years Costs

Machine Hours 38,000

Overhead costs:

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 if indirect labor, utilities, machinery depreciation, property taxes, and insurance is expexted to increase by 20 percent over the previous year. All other expenses are expexted to increase by 10 percent over the previous year. Machine hours for this year are estimated at 45,858.

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

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

JobNo. 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.

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 be increased or decreased to reflect actual overhead costs.

At what point during this year was the overhead rate computed. When was it applied. When was the underapplied or the overapplied overhead determined and the Cost of Goods Sold account adjusted to reflect actual costs.

Expert Answer

 

1) PROJECTED OVERHEAD COSTS: Last year Change This year
Indirect materials $     58,000 +30% $     75,400
Indirect labor $     25,000 +20% $     30,000
Supervision $     41,000 +10% $     45,100
Utilities $     11,200 +20% $     13,440
Labor related costs $       9,000 +10% $        9,900
Depreciation, factory $     10,500 +10% $     11,550
Depreciation, machinery $     27,000 +20% $     32,400
Property taxes $       3,000 +20% $        3,600
Insurance $       2,000 +20% $        2,400
Miscellaneous overhead $       5,000 +10% $        5,500
Total overhead $   191,700 $   229,290
Estimated machine hours 45858
Predetermined overhead rate = 229290/45858 = $          5.00
2) OVERHEAD APPLIED TO JOBS:
JOB Machine Hours Overhead applied (Machine hours * $5.00)
H-142 7840 39200
H-164 5260 26300
H-175 8100 40500
H-201 10680 53400
H-218 12310 61550
H-304 2460 12300
46650 233250
3) Overhead was underapplied during the year.
Actual overhead 234000
Overhead applied to Jobs 233250
Overhead under applied = 750
4) COGS should be increased to reflect actual overhead costs.
5) The overhead rate was computed at the start of the year.
It was applied throughout the year.
The underapplied overhead was determined and COGS was
adjusted to reflect actual costs, at the end of the year.

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