Chp.

05 In Class Examples
Exercise 5-22: Predetermined Overhead Rate, Overhead
Application
At the beginning of the year, Ilberg Company estimated the following costs:
Overhead
Direct labor cost

$416,000
520,000

Ilberg uses normal costing and applies overhead on the basis of direct labor cost.
(Direct labor cost is equal to total direct labor hours worked multiplied by the wage
rate.) For the month of December, direct labor cost was $43,700.
1) Calculate the predetermined overhead rate for the year.

2) Calculate the overhead applied to production in December.

Exercise 5-23: Overhead Variance (Over- or Underapplied),

Closing to Cost of Goods Sold
At the end of the year, Ilberg Company provided the following actual information:
Overhead
Direct labor cost

$423,600
532,000

Ilberg uses normal costing and applies overhead at the rate of 80 percent of direct
labor cost. At the end of the year, Cost of Goods Sold (before adjusting for any
overhead variance) was $1,890,000.
1) Calculate the overhead variance for the year.

2) Dispose of the overhead variance by adjusting Cost of Goods Sold.

Use the following information for Exercises 5-24 and 5-25: At the beginning of the
year, Hallett Company estimated the following:
Overhead
Direct labor hours
Machine hours

Cutting Department
$240,000
31,200
150,000

Sewing Department
$350,000
100,000
-

Total
$590,000
131,200
150,000

Exercise 5-24: Predetermined Departmental Overhead Rates,

Applying Overhead to Production
Refer to the information for Hallett Company above. Hallett uses departmental
overhead rates. In the cutting department, overhead is applied on the basis of
machine hours. In the sewing department, overhead is applied on the basis of direct
labor hours. Actual data for the month of June are as follows:
Overhead
Direct labor hours
Machine hours

Cutting Department
$20,610
2,800
13,640

Sewing Department
$35,750
8,600
-

Total
$56,360
11,400
13,640

1) Calculate the predetermined overhead rates for the cutting and sewing
departments.

2) Calculate the overhead applied to production in each department for the

month of June.

3) By how much has each department's overhead been overapplied?

Underapplied?

Exercise 5-25: Convert Departmental Data to Plantwide Data,

Plantwide Overhead Rate, Apply Overhead to Production
Refer to the information for Hallett Company above. Now, assume that Hallett has
decided to use a plantwide overhead rate based on direct labor hours.
1) Calculate the predetermined plantwide overhead rate. (Note: Round to the
nearest cent.)

2) Calculate the overhead applied to production for the month June.

3) Calculate the overhead variance for the month of June.

Exercise 5-26: Prepare Job-Order Cost sheets, Predetermined

Overhead Rate, Ending Balance of WIP, Finished Goods, and COGS
At the beginning of June, Rhone Company had two jobs in process, Job 44 and Job
45, with the following accumulated cost information:
Job 44
$5,100
1,200
780
$7,080

Direct materials
Direct labor
Applied overhead
Balance, June 1

Job 45
$1 ,500
3,000
1,950
$6,450

During June, two more jobs (46 and 47) were started. The following direct materials
and direct labor costs were added to the four jobs during the month of June:
Direct materials
Direct labor

Job 44
$2,500
800

Job 45
$7,110
6,400

Job 46
$1,800
900

Job 47
$1,700
560

At the end June, Jobs 44, 45, and 47 were completed. Only Job 45 was sold. On June
I, the balance in Finished Goods was zero.
1) Calculate the overhead rate based on direct labor cost. (Note: Round to four
decimal places.)

2) Prepare a brief job-order cost sheet for the four jobs. Show the balance as
June 1 as well as direct materials and direct labor added in June. Apply
overhead to the four jobs for the month of June, and show the ending
balances. (Note: Round all amounts to the nearest dollar.)

3) Calculate the ending balances of Work in Process and Finished Goods as June
30.

4) Calculate the Cost of Goods Sold for June.

Exercise 5-43: (Appendix 5A) Journal Entries

Olduvai Inc. uses a job-order costing system. During the month of May, the following
transactions occurred:
a) Purchased materials on account for $24,550.
b) Requisitioned materials totaling $23,130 for use in production. Of the total,
58,900 was for Job 58, $8,800 for Job 59, and tJ1e remainder for Job 60.
c) Incurred direct labor for the month of $36,000, witJ1 an average wage of $20
per hour. Job 58 used 800 hours; Job 59,600 hours; and Job 60, 400 hours.
d) Incurred and paid actual overhead of $17,880 (credit Various Payables).
e) Charged overhead to production at the rate of $4.80 per direct labor hour.
f) Completed and transferred Jobs 58 and 59 to Finished Good's.
g) Sold Job 57 (sec beginning balance of Finished Goods) and Job 58 to their
respective clients on account for a price of cost plus 40 percent.
Beginning balances as of May 1 were:
Materials
Work in Process
Finished Goods (Job 57)

$ 2,500
0
27,400

1) Prepare the journal entries for transactions (a) through (g).

2) Prepare brief job-order cost sheets for Jobs 58, 59, and 60.

3) Calculate the ending balance of Raw Materials.

4) Calculate the ending balance of Work in Process.

5) Calculate the ending balance of Finished Good.

10