Homework Chapter 2

BE3–3 Harris Fabrics computes its predetermined overhead rate annually on the basis of direct
labour-hours. At the beginning of the year, it estimated that its total manufacturing overhead
would be $540,000 and the total direct labour would be 30,000 hours. Its actual total
manufacturing overhead for the year was $547,900, and its actual totaldirect labour was 31,000
hours.Compute the company’s predetermined overhead rate for the year.

Answer: Compute the company’s predetermined overhead rate for the year (POHR).

BE 3-4 Larned Corporation recorded the following transactions for the past month: 
a. $180,000 in raw materials were purchased on account.
b. $171,000 in raw materials were requisitioned for use in production. Of this amount,
$152,000 was for direct materials, and the remainder was for indirect materials.
c. Total labour costs of $221,000 were incurred. Of this amount, $201,000 was for
direct labour, and the remainder was for indirect labour.
d. Manufacturing overhead costs of $375,000 were incurred.
Record the preceding transactions in journal entries.

Answer: Record the preceding transactions in journal entries.

Description Debit Credit
a. Raw materials $18,000
Account payable $18,000
b. Work in process $152,000
Manufacturing Overhead $ 19,000
Raw materials $171,000
c. Work in process $201,000
Manufacturing Overhead $ 20,000
Raw materials $221,000
d. Manufacturing Overhead $375,000
Various Accounts $375,00
BE 3-7 Osborn Manufacturing uses a predetermined overhead rate of $28.20 per direct labour-
hour. This predetermined rate was based on 12,000 estimated direct labour-hours and $338,400
of estimated total manufacturing overhead. The company incurred actual total manufacturing
overhead costs of $315,000 and 11,500 total direct labour-hours during the period.
Required:
1. Determine the amount of underapplied or overapplied manufacturing overhead for the
period.
2. Assuming that the entire amount of the underapplied or overapplied overhead is closed
out to cost of goods sold, what would be the effect of the underapplied or overapplied
overhead on the company’s gross margin for the period?
Answer:
1. Determine the amount of underapplied or overapplied manufacturing overhead for the
period.
Manufacturing overhead applied = POHR x Actual direct labor hours
= $ 28.20 x 11,500h

= $324,300s

Overapplied manufacturing = MOHA- Total MOHC

= $324,300-$315,000
= $9,300
2. The entire amount of the underapplied or overapplied overhead is closed out to cost of
goods sold would be by $9,300 , the effect of the underapplied or overapplied overhead
on the company’s gross margin for the period would be by $9,300.

E3-4 The Polaris Company uses a job-order costing system. The following data relate to
October, the first month of the company’s fiscal year:
a. Raw materials were purchased on account, $300,000.
b. Raw materials were issued to production, $290,000 ($228,000 direct materials and
$62,000 indirect materials).
c. Direct labour cost was incurred, $110,000; indirect labour cost was incurred, $90,000.
d. Depreciation was recorded on factory equipment, $70,000.
e. Other manufacturing overhead costs were incurred during October, $140,000 (credit
accounts payable).
f. The company applies manufacturing overhead cost to production on the basis of $12.60
per machine-hour. There were 30,000 machine-hours recorded for October.
g. Production orders costing $720,000 according to their job cost sheets were completed
during October and transferred to finished goods.
 h. Production orders that had cost $680,000 to complete according to their job cost sheets were
shipped to customers during the month. These goods were sold at 25% above cost. The goods
were sold on account.
Required:
1. Prepare journal entries to record the preceding information.
2. Prepare T-accounts for manufacturing overhead and work in process. Post the relevant
information above to each account. Compute the ending balance in each account,
assuming that work in process has a beginning balance of $42,000.
E3-8 Answer each question independently.
Required:
1.  Mirage Mirror’s predetermined overhead rate for manufacturing overhead is $18 per
direct labour-hour. The direct labour rate is $24 per hour. If the budgeted direct labour
cost was $300,000, what was the budgeted manufacturing overhead?
2. Zion wants to compute the total cost for preparing a corporate tax return for his client.
His labour is the only direct cost at $65 per hour. He estimates monthly overhead costs at
$7,500 for 150 direct labour-hours. If the tax return requires 13 hours to prepare, what
will be the total direct cost, indirect cost, and job cost, respectively?
3. Kyle Corporation had the following account balances at the end of this year:

Assuming that over- or underapplied overhead is written off to cost of goods sold, prepare the
appropriate journal entry, and compute the adjusted balance in the cost of goods sold account.