Business, 07.03.2020 00:32 rileyeddins1010

Resource Room prints custom training material for corporations. The business was started January 1, 2017. The company uses a normal-costing system. It has two direct-cost pools, materials and labor, and one indirect-cost pool, overhead. Overhead is charged to printing jobs on the basis of direct labor cost. The following information is available for 2017.

Budgeted direct labor costs……………$190,000
Budgeted overhead costs………………$266,000
Costs of actual material used………….$158,000
Actual direct labor costs…………………..$175,000
Actual overhead costs…………………….$247,200

There were two jobs in process on December 31, 2017: Job 11 and Job 12. Costs added to each job as of December 31 are as follows:

Direct Material Direct Labour
Job 11 $4,720 $5,700
Job 12 $5,090 $6,900

Resource Room has no finished-goods inventories because all printing jobs are transferred to cost of goods sold when completed.

Required:
a. Compute the overhead allocation rate.
b. Calculate the balance in ending work in process and cost of goods sold before any adjustments for under- or overallocated overhead.
c. Calculate under- or overallocated overhead.
d. Calculate the ending balances in work in process and cost of goods sold if the under- or overallocated overhead amount is as follows:

i. Written off to cost of goods sold
ii. Prorated using the overhead allocated in 2017 (before proration) in the ending balances of cost of goods sold and work-in-process control accounts

g. Which of the methods in requirement 4 would you choose? Explain.

Answers: 2

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Answer from: sophiaa23

Budgeted Overhead Cost 266,000

Budgeted Labor Cost 190,000

Recovery rate =266000/190000

Recovery rate per labor cost 1.40

Actual Material 158,000

Actual labor 175,000

WIP closing Material Labor

Job 11 4,720 5,700

Job 12 5,090 6,900

Total 9,810 12,600

Transfer to Finished= Total-WIP

Actual Material 148,190

Actual labor 162,400

Category Finished WIP Total

Material 148,190 9,810 158,000

Labor 162,400 12,600 175,000

Overhead-Recovered 227,360 17,640 245,000

@ 140% of labor

Balance before 537,950 40,050 578,000

adjustment to overhead

under-allocation

Option 1-Underallocated 2,200 2,200

overhead (247200-245000)

Balance after adjusting 540,150 40,050 580,200

overhead under-allocation

Option 2-Underallocated 2,042 158 2,200

overhead in overhead allocated rate

2200*227360/245000

2200*17640/245000

Balance before adjustment 537,950 40,050 578,000

to overhead under-allocation

Balance after adjusting 539,992 40,208 580,200

overhead under-allocation

g. the option 2 will be chosen because a careful look at the underallocated overhead is similar to 2017 so the charge should be levied on all activity

Explanation:

Budgeted Overhead Cost 266,000

Budgeted Labor Cost 190,000

Recovery rate =266000/190000

Recovery rate per labor cost 1.40

Actual Material 158,000

Actual labor 175,000

WIP closing Material Labor

Job 11 4,720 5,700

Job 12 5,090 6,900

Total 9,810 12,600

Transfer to Finished= Total-WIP

Actual Material 148,190

Actual labor 162,400

Category Finished WIP Total

Material 148,190 9,810 158,000

Labor 162,400 12,600 175,000

Overhead-Recovered 227,360 17,640 245,000

@ 140% of labor

Balance before 537,950 40,050 578,000

adjustment to overhead

under-allocation

Option 1-Underallocated 2,200 2,200

overhead (247200-245000)

Balance after adjusting 540,150 40,050 580,200

overhead under-allocation

Option 2-Underallocated 2,042 158 2,200

overhead in overhead allocated rate

2200*227360/245000

2200*17640/245000

Balance before adjustment 537,950 40,050 578,000

to overhead under-allocation

Balance after adjusting 539,992 40,208 580,200

overhead under-allocation

g. the option 2 will be chosen because a careful look at the underallocated overhead is similar to 2017 so the charge should be levied on all activity

Answer from: Quest

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Answer from: Quest

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Resource Room prints custom training material for corporations. The business was started January 1,...

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