CH 12 SM

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CHAPTER 12
DISCUSSION QUESTIONS
Q12-1. Supervisors’ salaries, indirect labor, overtime or to be performed, i.e., for estimating pur-
premium, supplies, indirect materials, payroll poses. Ordinarily, the base selected should be
tax, factory insurance, and depreciation. closely related to functions represented by
Q12-2. The most important reason for variation in fac- the applied overhead cost. If factory overhead
tory overhead is the presence of fixed and costs are predominantly labor oriented, such
variable expenses. Therefore, as production as supervision and indirect labor, the proper
volume changes from month to month, the base would probably be direct labor hours. If
costs will do likewise. However, overhead also factory overhead costs are predominantly
will change because of improved or decreased related to the cost incurred in the ownership
efficiencies and changes in prices paid for and operation of the machinery, the proper
overhead items such as supplies and repairs. base would probably be machine hours.
Q12-3. Predetermined rates are used when it Another objective in selecting the base is
becomes obvious that any other method of to minimize clerical cost and effort relative to
charging overhead results in inequitable cost- the benefits attained. When two or more
ing and delays the reporting of financial bases provide approximately the same
results. Charging actual overhead to jobs and applied overhead cost to specific units of pro-
products can result in charging unreasonable duction, the simplest base should be used.
amounts of overhead to various periods and Q12-7. (a) Theoretical capacity is actually the maxi-
in delayed reporting of cost data. The use of mum production possible from a given
predetermined rates also enhances control plant with no allowance made for cessation
through analysis of over- or underapplied fac- of operations for holidays, weekends, mate-
tory overhead. rials shortages, or machine breakdowns.
Q12-4. Six bases used for applying factory overhead (b) Practical capacity is theoretical capacity
are units produced, direct materials cost, less an allowance for interruptions such
direct labor cost, direct labor hours, machine as breakdowns, delays in receiving sup-
hours, and transactions. Important considera- plies, and worker absences. Practical
tions in selecting a base are the relationship capacity is usually 75 to 85 percent of
(correlation) of the base used and the use of theoretical capacity.
overhead items in manufacturing operations, (c) Expected actual capacity is practical
as well as the clerical practicability of using a capacity adjusted for the lack of sufficient
particular base. demand in a single operating period and
Q12-5. Predetermined rates are used to charge over- may be used in building operating budg-
head and become the basis for determining ets when expected capacity differs sub-
the cost of a job or product. Therefore, the rea- stantially from normal capacity.
sonableness of such costs is to a large extent (d) Normal capacity is practical capacity
determined by the reasonableness of the adjusted to give consideration to the lack
rates. Since these costs are used for costing of sufficient demand over a period long
inventories and play an important role in estab- enough to include cyclical and seasonal
lishing sales prices, the selection of proper pre- fluctuations. This is usually the basis for
determined rates can be appreciated. long-range planning, standards, and
Q12-6. An objective in selecting the base for a prede- preferably for the determination of over-
termined factory overhead rate is to ensure head rates.
the application of factory overhead in reason- Q12-8. The underapplied overhead will be higher If
able proportion to a beneficial or causal rela- maximum capacity is used and lower if nor-
tionship to jobs, products, or work performed mal is used. If this cost is charged to the
12-1
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12-2 Chapter 12
current period, then maximum capacity will Q12-10. (a) Analyze and identify the overhead trans-
produce a lower, and normal capacity a actions.
higher, operating profit. (b) Journalize the transactions.
Q12-9. (a) Idle capacity costs arise from idle employ- (c) Enter transactions in general and sub-
ees and idle facilities. Idle employees give sidiary ledgers.
rise to costs such as base wages paid, Q12-11. Overhead applied to production is entered
employer’s share of payroll taxes, and as a credit in the factory overhead control
other fringe benefit costs. Idle facilities account. Actual overhead is debited to the
cause capacity costs due to deterioration same account. Therefore, overhead has
with time, approaching obsolescence, been overapplied when the account has a
costs for upkeep, readiness, mainte- credit balance.
nance, repairs, shelter, and protection of Q12-12. Overhead can be overapplied because (a)
valuables such as insurance. actual overhead was less than budgeted; (b)
(b) When idle capacity is present, an attempt capacity utilized was greater than that esti-
should be made to segregate idle mated in computing overhead rates; (c) the
employees and idle facilities through overhead estimate was too high (a mistake);
proper reclassification. The accumulation (d) the production estimate was too low (a
of the cost attributable to these idle work- mistake); (e) combinations of the above.
ers or facilities in excess of a reasonable Q12-13. Over- or underapplied factory overhead may
budgeted amount might be in some kind be prorated among work in process, finished
of overhead account to be treated sepa- goods, and cost of goods sold, or it may be
rately as a “management by exception” treated entirely as a period cost. The first
factor. Idle capacity costs should be method would have a smaller effect on cost
accounted for separately for these rea- of goods sold and therefore on the net
sons: (1) to prevent distortion and confu- income for the period.
sion in the analysis of production costs; Q12-14. The existence of large underabsorbed vari-
(2) to facilitate income determination; (3) ances does not necessarily mean that unit
to control operations; and (4) to plan next costs are incorrect. An analysis of the under-
year’s budget adequately. absorbed figures will indicate (a) whether
(c) Excess capacity cost has been identified actual overhead is too high or whether
with those capacity costs that result from expenses have been incorrectly estimated;
greater production capacity than the com- and (b) what part of the underabsorption is
pany could ever hope to use, or from caused by unused capacity. If actual over-
unbalanced equipment or machinery head is considered to be too high and there
within departments. In creating the fore- is idle capacity, unit costs computed are
cast budget, it is important to isolate the more reasonable than they would be if over-
excess capacity cost so that manage- head rates were computed to absorb all of
ment can be made aware of its responsi- the actual overhead.
bility regarding the excess investment in
labor and machines.
12-2
Chapter 12 12-3
EXERCISES
E12-1
(1) $1,750,000 fixed overhead and $720 variable overhead per ton, calculated as
follows:
For both the normal capacity and expected actual capacity, the problem states
the total budgeted overhead cost and the number of tons of activity. The high-
low method of estimating cost behavior can be used to determine the over-
head budget, using those two points:
Budgeted
Activity Level Tons Overhead
Normal capacity 6,000 $6,070,000
Expected actual 5,000 5,350,000
Difference 1,000 $ 720,000
$720, 000
Variable = = $720 va riable overhead per ton
overhead rate 1, 000 tons
Budgeted fixed overhead = $5,350,000 total overhead

– ($720 × 5,000) variable overhead
= $5,350,000 – $3,600,000 = $1,750,000
or, budgeted
fixed overhead = $6,070,000 total overhead
= $6,070,000 – $4,320,000 = $1,750,000
12-4 Chapter 12
E12-1 (Concluded)
(2) The predetermined rate at practical capacity would be $938.75 per ton. Using
the budget for fixed and variable overhead, a predetermined overhead rate can
be calculated at any level of activity within the relevant range. Assuming prac-
tical capacity is within that range, the calculation is:
Predetermined
overhead rate at Budgeted total overhead at practical capacity
=
practical capacity Pr actical capacity in tons
(8,000 tons)
Budgeted fixed overhead

+ Budgeted variable
overhead at 8, 000 tons $1, 750, 000 + ($720 × 8, 000)
= =
8, 000 tons 8, 000 tons
$1, 750, 000 + $5, 760, 000) $7, 510, 000

= = =$938.75 per ton
8, 000 tons 8, 000 tons
or, $720 variable overhead per ton + ($1,750,000/8,000 tons)

= $720 per ton + $218.75 per ton = $938.75 per ton.
E12-2
Work in process balance, September 30.................... $12,200
Less materials still in process .................................... 5,560
Factory overhead and direct labor still in process ... $ 6,640
Charged to
Work in Process
Amount %
Factory overhead............... $15,840 44%* × $6,640 = $2,921.60
Direct labor ....................... 20,160 56 × 6,640 = 3,718.40
$36,000 100% $6,640.00
*$15,840 ÷ $36,000 = 44%
(or)
$15,840 (factory overhead) ÷ $20,160 (direct labor) = .7857

Let X = direct labor still in process
Then, X + .7857X = $6,640
1.7857X = $6,640
X = $3,718.4297 direct labor still in process
.7857X = $2,921.5702 factory overhead still in process
$6,639.9999
Chapter 12 12-5
E12-3
(1) 150 people × 8 hrs. per day × 5 days per week × 48 weeks =
288,000 direct labor hrs.
(2) 150 people × 10 hrs. per day × 4 days per week × 48 weeks =
288,000 direct labor hrs.
E12-4
Factory overhead rates:
(1) Units of production: $225,000 ÷ 25,000 units = $9
(2) Materials cost: $225,000 ÷ $500,000 = .45 = 45%
(3) Direct labor hours: $225,000 ÷ 56,250 DLH = $4
(4) Direct labor cost: $225,000 ÷ (56,250 DLH × $8) = .50 = 50%
(5) Machine hours: $225,000 ÷ 75,000 machine hours = $3
E12-5
(1) Assuming normal capacity:

(a) The factory overhead rate: ($400,000 ÷ 50,000) + $6.69 = $14.69
(b) The fixed part of the factory overhead rate: $400,000 ÷ 50,000 = $8
(2) Assuming expected actual capacity:
(a) The factory overhead rate: ($400,000 ÷ 40,000) + $6.69 = $16.69
(b) The fixed part of the factory overhead rate: $400,000 ÷ 40,000 = $10
E12-6
Actual factory overhead ........................................................... $281,000

Applied factory overhead (52,500 machine hours × $5.10*) . 267,750
Underapplied factory overhead for the period....................... $ 13,250
*$255,000 ÷ 50,000 budgeted machine hours = $5.10

12-6 Chapter 12
E12-7
(1) Work in Process............................................................ 1,450,000
Materials ............................................................... 1,450,000
Work in Process............................................................ 928,000
Payroll ................................................................... 928,000
Factory Overhead Control ........................................... 561,600
Materials, Payroll, Accruals, and Various Credits 561,600
Work in Process............................................................ 551,000
Applied Factory Overhead.................................. 551,000
Applied Factory Overhead........................................... 551,000
Factory Overhead Control .................................. 551,000
Estimated factory overhead $570, 000
Overhead rate : = = $19 per drill
Estimated production 30, 000
(2) Underapplied factory overhead: $561,600 – $551,000 = $10,600
E12-8
Actual factory overhead............................................... $ 9,000
Applied factory overhead (4,100 units × $2.46)* ....... 10,086
Overapplied overhead.................................................. $(1,086)
*Variable factory overhead rate ................................... $2.10
Fixed factory overhead rate ($1,440 ÷ 4,000 units) ... .36
Total factory overhead rate ........................................ $2.46
E12-9
(1) Applied factory overhead:
$16, 920
= $ .47 fixed portion of rate
36, 000 machine hours
2.10 variable portion of rate
$2.57 total rate
$2.57 × 2,700 machine hours = $6,939 applied factory overhead
(2) Actual factory overhead............................................... $7,400

Applied factory overhead ............................................ 6,939
Underapplied overhead................................................ $ 461
Chapter 12 12-7
E12-10
Actual factory overhead ........................................................... $832,000

Applied factory overhead (210,000 machine hours × $4) ..... 840,000
Overapplied factory overhead ................................................. $ (8,000)
E12-11
(1) Fixed portion of the factory overhead application rate:

$150, 000
= $1.50 per machine hour
(2) Variable portion of the factory overhead application rate:

$250, 000
= $2.50 per machine hour
(3) Actual factory overhead............................................... $411,000

Applied factory overhead (105,000 × $4.00)............... 420,000
Overapplied factory overhead..................................... $ (9,000)
E12-12
Actual factory overhead ........................................................... $ 14,134

Applied factory overhead (200% of $8,117)............................ 16,234
Overapplied overhead .............................................................. $ (2,100)
12-8 Chapter 12
E12-13
Requirements (1) & (2) Requirement (3)

Account Percentage Applied Percentage
Balance of Total Overhead of Total
Work in process .............................. $ 6,000 5 % $ 2,000 4%
Finished goods ............................... 38,000 31 2/3% 16,000 32%
Cost of goods sold ......................... 76,000 63 1/3% 32,000 64%
Total........................................... $120,000 100 % $50,000 100%
(1) Work in Process (5% of $6,000) .................................. 300

Finished Goods (31 2/3% of $6,000) ........................... 1,900
Cost of Goods Sold (63 1/3% of $6,000) .................... 3,800
(2) Factory Overhead Control ........................................... 6,000

Work in Process (5% of $6,000) ......................... 300
Finished Goods (31 2/3% of $6,000) .................. 1,900
Cost of Goods Sold (63 1/3% of $6,000) ........... 3,800
(3) Work in Process (4% of $6,000) .................................. 240

Finished Goods (32% of $6,000) ................................. 1,920
Cost of Goods Sold (64% of $6,000) .......................... 3,840
Chapter 12 12-9
PROBLEMS
P12-1
(1) Actual overhead incurred ............................................ $3,470,000
Applied overhead* ........................................................ 3,325,000
Underapplied overhead................................................ $ 145,000
*actual MH × predetermined rate based on expected actual capacity

= 9,500 MH × ($3,500,000/10,000 MH)
= 9,500 MH × $350 per MH = $3,325,000
(2) The predetermined rate at practical capacity would be $316.67 per machine
hour (MH), calculated as follows:
First, find the budgeted total fixed overhead and the budgeted variable over-
head rate per MH. The problem states both the total budgeted overhead cost
and the number of MH of activity, at both the normal capacity and expected
actual capacity levels, so the high-low method of estimating cost behavior can
be used:
Machine Budgeted
Activity Level Hours Overhead
Expected actual 10,000 $3,500,000
Normal capacity 8,000 3,000,000
Difference 2,000 $ 500,000
Variable $500, 000

= = $250 var iable overhead per MH
overhead rate 2, 000 MH
Budgeted fixed overhead = $3,500,000 total overhead

= $3,500,000 – $2,500,000 = $1,000,000
or, budgeted
fixed overhead = $3,000,000 total overhead
= $3,000,000 – $2,000,000 = $1,000,000
Then, using the budget for fixed and variable overhead, a predetermined overhead rate
can be calculated at any level of activity within the relevant range. Assuming practical
capacity is within that range, the calculation is:
12-10 Chapter 12
P12-1 (Concluded)
Predetermined
overhead rate at Budgeted total overhead at practical capacity
=
practical capacity Practical capacity in MH
(15,000 MH )
Budgeted fixed overhead

+ Budgeted variable
Overhead at 15, 000 MH $1, 000, 000 + ($250 × 15, 000)
= =
15, 000 MH 15, 000 MH
$1, 000, 000 + $3, 750, 000 $4, 750, 000

= = = $316.67 per MH
15, 000 MH 15, 000 MH
or, $250 variable overhead per MH + ($1,000,000 ÷ 15,000 MH)

= $250 per MH + $66.67 per MH = $316.67 per MH.
(3) If the actual overhead of $3,470,000 were underapplied by $10,000, then Applied
Overhead would have a credit balance of $3,470,000 – $10,000, or $3,460,000.
The closing entries are:
Applied Overhead......................................................... 3,460,000

Factory Overhead Control .................................. 3,460,000
Cost of Goods Sold...................................................... 10,000

(4) Account Percentage

Balance of Total
Work in process............................................................ $ 200,000 2.5%
Finished goods ............................................................. 400,000 5.0%
Cost of goods sold....................................................... 7,400,000 92.5%
Total ...................................................................... $8,000,000 100.0%
Work in Process (2.5 % of $10,000) ............................ 250

Finished Goods ............................................................ 500
Cost of Goods Sold...................................................... 9,250
P12-2
Chapter 12
(1) (2)
Factory Variable
Overhead Overhead Fixed
Cost per Unit Overhead
Depreciation on
factory building
and equipment................................................. $14,500
Heat, light, and power .....................................

($ 8, 000 − $6, 000) = $ .40 $ 8,000 = a + $ .40 (15,000)
(15, 000 − 10, 000) a = 2,000
Supplies used ..................................................

($10, 500 − $7, 000) = .70 $10,500 = a + $ .70 (15,000)
(15, 000 − 10, 000) a = 0
Taxes on factory building ............................... 1,500
Indirect labor.................................................... ($70, 000 − $60, 000) = 2.00 $70,000 = a + $2.00 (15,000)
(15, 000 − 10, 000)
a = 40,000
($18, 000 − $12, 000)

Maintenance..................................................... = 1.20 $18,000 = a + $1.20 (15,000)
(15, 000 − 10, 000)
a = 0
Total .................................................................. $4.30 $58,000

. CGA-Canada (adapted). Reprint with permission.
12-11
12-12 Chapter 12
P12-3
(1) Total cost of Job 50:
Work in process, December 1 ............................................................ $ 54,000
December costs:
Materials ...................................................................................... 45,000
Direct labor (($102,000 ÷ 8,500) × 3,500) .................................. 42,000
Factory overhead ($4.50 × 3,500) .............................................. 15,750
$156,750
(2) Factory overhead costs applied to Job 52 during December:

$4.50 × 2,000 = $9,000
(3) Total factory overhead costs applied during December:

$4.50 × 8,500 = $38,250
(4) Actual December factory overhead incurred:

Supplies ................................................................................................ $ 3,500
Indirect labor wages ............................................................................ 15,000
Supervisory salaries............................................................................ 6,000
Building occupancy costs .................................................................. 3,500
Factory equipment costs .................................................................... 8,000
Other factory costs.............................................................................. 5,000
$39,000
(5) An insignificant amount of over- or underapplied factory overhead would be

treated as a period cost.
(6) Actual overhead ................................................................................... $39,000

Applied overhead................................................................................. 38,250
Underapplied overhead ....................................................................... $ 750
Chapter 12 12-13
P12-4
(1) Actual factory overhead:
Indirect materials and supplies .......................................................... $ 18,000
Indirect labor ........................................................................................ 53,000
Employee benefits ............................................................................... 23,000
Depreciation ......................................................................................... 12,000
Supervision .......................................................................................... 20,000
$126,000
(2) Over- or underapplied factory overhead:

Total direct labor, 20— $ 70,000
Factory overhead rate per direct labor dollar ................................... 160%
Applied factory overhead $112,000
Actual factory overhead ...................................................................... 126,000
Underapplied factory overhead $ 14,000
(3) Amount included in cost of goods sold for Job 1376:

Beginning balance $ 72,500
Materials and labor, 20—..................................................................... 8,000
Applied factory overhead, 20— ($7,000 × 160%) .............................. 11,200
$ 91,700
(4) Cost assigned to the work in process account at the end of 20—:
Beginning balance (Job 1376)..................................... $ 72,500
Cost charged to work in process, 20—:
Materials ............................................................... $ 43,000
Labor..................................................................... 70,000
Applied factory overhead ................................... 112,000 225,000
$297,500
Less cost of Job 1376, which was completed
and sold................................................................ 91,700
$205,800
12-14 Chapter 12
P12-5
(1) Predetermined factory overhead rate based on normal capacity:
$29, 250
= $.65 variable portion of rate for expected actual
45, 000 MH and normal capacity
$18, 000 = .30 fixed portion of rate based on normal capacity
60, 000 MH $.95 total rate based on normal capacity
(2) Predetermined factory overhead rate based on expected actual capacity:
$29, 250
= $ .65 variable portion of rate for expected actual and
45, 000 MH normal capacity
$18, 000
= .40 fixed portion of rate based on expected actual capacity
45, 000 MH
$1.05 total rate based on expected actual capacity
(3) Amount of factory overhead charged to production if the company used the
normal capacity rate:
47,000 MH × $.95 = $44,650
(4) Amount of factory overhead charged to production if the company used the
expected actual capacity rate:
47,000 MH × $1.05 = $49,350
(5) Actual factory overhead ...................................................................... $ 47,100

Applied overhead (from (3) normal capacity rate)............................ 44,650
Underapplied overhead ....................................................................... $ 2,450
(6) Actual factory overhead ...................................................................... $ 47,100

Applied overhead (from (4) expected actual capacity rate)............. 49,350
Overapplied overhead ......................................................................... $ (2,250)
Chapter 12 12-15
P12-6
(1) Work in Process: Finished Goods:
Direct materials ......... $ 9,000 Direct materials ................ $10,000

Direct labor ................ 16,000 Direct labor ....................... 40,000
Factory overhead Factory overhead
(2,000 × $3.60) ..... 7,200 (5,000 × $3.60) ............. 18,000
Total................ $32,200 Total ....................... $68,000
(2) Supervision .......................................................................................... $ 17,500

Indirect labor ........................................................................................ 29,050
Heat, light, and power.......................................................................... 23,800
Depreciation—factory buildings......................................................... 7,500
Property tax—factory facilities........................................................... 4,000
Insurance on factory buildings .......................................................... 3,000
Transportation in.................................................................................. 6,500
Repairs and maintenance ................................................................... 8,250
Depreciation—factory equipment ...................................................... 7,500
Miscellaneous factory overhead ........................................................ 9,900
Total actual factory overhead .................................................... $117,000
(3) Actual overhead ................................................................................... $117,000

Applied overhead................................................................................. 115,200
Underapplied overhead ....................................................................... $ 1,800
12-16 Chapter 12
P12-6 (Concluded)
(4) COLUMBUS COMPANY
Cost of Goods Sold Statement
For January
Materials:
Inventory, January 1 .......................................... $ 21,000
Purchases........................................................... $108,000
Less returns to suppliers.................................. 5,050 102,950
Materials available ............................................. $123,950
Inventory January 31......................................... 9,000 $114,950
Direct labor ..................................................................... 256,000
Applied factory overhead .............................................. 115,200
January manufacturing cost ......................................... $486,150
Add work in process, January 1 ................................... 32,500
$518,650
Less work in process, January 31 ................................ 32,200
Cost of goods manufactured ........................................ $486,450
Add finished goods, January 1 ..................................... 18,000
Cost of goods available for sale ................................... $504,450
Less finished goods, January 31.................................. 68,000
Cost of goods sold at normal ....................................... $436,450
Add underapplied factory overhead............................. 1,800
Cost of goods sold at actual......................................... $438,250
Chapter 12 12-17
CASES
C12-1
(1) Direct Labor Factory
Hours Overhead Costs
High ............................................................ 2,760,000 hours $34,500,000
Low ............................................................ 2,160,000 29,880,000
Difference ................................................... 600,000 hours $ 4,620,000
Variable rate = $4,620,000 ÷ 600,000 hours = $7.70 per direct labor hour
High Low
Total cost ....................................................... $34,500,000 $29,880,000
Variable cost ($7.70 per direct labor hour) . 21,252,000 16,632,000
Fixed element................................................. $13,248,000 $13,248,000
Estimated total factory overhead for next year.

Total variable factory overhead (2,300,000 × $7.70)..................... $17,710,000
Total fixed factory overhead........................................................... 13,248,000
Total factory overhead .................................................................... $30,958,000
(2) Utility of cost behavior information:

(a) Evaluation of product pricing decisions—The calculation of the factory
overhead rate required the company to estimate the variable factory over-
head cost. In short-term price-cutting situations, the price set should cover
at least the variable materials, labor, factory overhead, and nonmanufactur-
ing costs. For the longer term, the total cost assigned to the various prod-
ucts may provide some basis for price differentials among the items.
(b) Cost control evaluation—The calculation of the factory overhead rate
required the company to estimate the fixed factory overhead cost and the
variable factory overhead cost per direct labor hour. The amounts are esti-
mates of what the cost should or will be during the next year. The amounts
can be used as the basis for preparation of a budget allowance for actual
activity to be compared to actual cost incurred. Any difference between the
budget amounts and actual cost would be a measure of the effectiveness
of factory overhead cost control.
(c) Development of budgets—The estimates of fixed factory overhead cost and
the variable factory overhead cost per direct labor hour are useful in
budget development. They permit the company to calculate the estimated
factory overhead cost for different activity levels that are being considered
as the budget is developed.

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Budgeted fixed overhead = $5,350,000 total overhead

Budgeted fixed overhead

$1, 750, 000 + $5, 760, 000) $7, 510, 000

or, $720 variable overhead per ton + ($1,750,000/8,000 tons)

$15,840 (factory overhead) ÷ $20,160 (direct labor) = .7857

Factory overhead rates:

(1) Units of production: $225,000 ÷ 25,000 units = $9

(2) Materials cost: $225,000 ÷ $500,000 = .45 = 45%

(3) Direct labor hours: $225,000 ÷ 56,250 DLH = $4

(5) Machine hours: $225,000 ÷ 75,000 machine hours = $3

(1) Assuming normal capacity:

Actual factory overhead ........................................................... $281,000

*$255,000 ÷ 50,000 budgeted machine hours = $5.10

(2) Underapplied factory overhead: $561,600 – $551,000 = $10,600

$2.57 × 2,700 machine hours = $6,939 applied factory overhead

(2) Actual factory overhead............................................... $7,400

Actual factory overhead ........................................................... $832,000

(1) Fixed portion of the factory overhead application rate:

(2) Variable portion of the factory overhead application rate:

(3) Actual factory overhead............................................... $411,000

Actual factory overhead ........................................................... $ 14,134

Requirements (1) & (2) Requirement (3)

(1) Work in Process (5% of $6,000) .................................. 300

(2) Factory Overhead Control ........................................... 6,000

(3) Work in Process (4% of $6,000) .................................. 240

*actual MH × predetermined rate based on expected actual capacity

Variable $500, 000

Budgeted fixed overhead = $3,500,000 total overhead

Budgeted fixed overhead

$1, 000, 000 + $3, 750, 000 $4, 750, 000

or, $250 variable overhead per MH + ($1,000,000 ÷ 15,000 MH)

Applied Overhead......................................................... 3,460,000

Cost of Goods Sold...................................................... 10,000

(4) Account Percentage

Work in Process (2.5 % of $10,000) ............................ 250

Heat, light, and power .....................................

Supplies used ..................................................

Taxes on factory building ............................... 1,500

($18, 000 − $12, 000)

Total .................................................................. $4.30 $58,000

(2) Factory overhead costs applied to Job 52 during December:

(3) Total factory overhead costs applied during December:

(4) Actual December factory overhead incurred:

(5) An insignificant amount of over- or underapplied factory overhead would be

(6) Actual overhead ................................................................................... $39,000

(2) Over- or underapplied factory overhead:

(3) Amount included in cost of goods sold for Job 1376:

(2) Predetermined factory overhead rate based on expected actual capacity:

47,000 MH × $.95 = $44,650

47,000 MH × $1.05 = $49,350

(5) Actual factory overhead ...................................................................... $ 47,100

(6) Actual factory overhead ...................................................................... $ 47,100

Direct materials ......... $ 9,000 Direct materials ................ $10,000

(2) Supervision .......................................................................................... $ 17,500

(3) Actual overhead ................................................................................... $117,000

Estimated total factory overhead for next year.

(2) Utility of cost behavior information: