Gene Simmons Company uses normal costing in each of its threemanufacturing departments. Manufacturing overhead is applied toproduction on the basis of direct labor cost in Department A,machine hours in Department B, and direct labor hours in DepartmentC. In establishing the predetermined overhead rates for the currentyear, the following budgeted data was available:
A B C
Manufacturing Overhead $900,000 $840,000 $760,000
Direct Labor Cost $600,000 $100,000 $600,000
Direct Labor Hours 50,000 40,000 40,000
Machine Hours 100,000 120,000 125,000
The following actual information is available for January of thecurrent year for each department:
Direct Materials Used $92,000 $86,000 $64,000
Direct Labor Cost $48,000 $35,000 $50,400
Manufacturing Overhead $76,000 $75,000 $72,100
Direct Labor Hours Used 4,000 3,500 4,200
Machine Hours Used 8,000 10,500 12,600
REQUIRED:
A. What two disadvantages are associated with actual costing?How does normal costing "solve" these problems?
B. Compute the pre-determined overhead rate for the current yearfor each department.
C. Compute the manufacturing overhead applied in January in eachdepartment.
D. Compute under- or over-applied overhead at the end of Januaryin each department--be sure to label the amount as under- orover-applied.
E. How will the balance of the Factory Overhead account of eachdepartment be reported on the financial statements at the end of(1) January and (2) the year?
Gene Simmons Company uses normal costing in each of its threemanufacturing departments. Manufacturing overhead is applied toproduction on the basis of direct labor cost in Department A,machine hours in Department B, and direct labor hours in DepartmentC. In establishing the predetermined overhead rates for the currentyear, the following budgeted data was available:
A B C
Manufacturing Overhead $900,000 $840,000 $760,000
Direct Labor Cost $600,000 $100,000 $600,000
Direct Labor Hours 50,000 40,000 40,000
Machine Hours 100,000 120,000 125,000
The following actual information is available for January of thecurrent year for each department:
Direct Materials Used $92,000 $86,000 $64,000
Direct Labor Cost $48,000 $35,000 $50,400
Manufacturing Overhead $76,000 $75,000 $72,100
Direct Labor Hours Used 4,000 3,500 4,200
Machine Hours Used 8,000 10,500 12,600
REQUIRED:
A. What two disadvantages are associated with actual costing?How does normal costing "solve" these problems?
B. Compute the pre-determined overhead rate for the current yearfor each department.
C. Compute the manufacturing overhead applied in January in eachdepartment.
D. Compute under- or over-applied overhead at the end of Januaryin each department--be sure to label the amount as under- orover-applied.
E. How will the balance of the Factory Overhead account of eachdepartment be reported on the financial statements at the end of(1) January and (2) the year?
