Woodgrain technology makes home office furniture from fine hardwoods

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Chapter 4

PROBLEM 4-21 Multiple Departments; Applying Overhead [LO 4-1, LO 4-2, LO 4-3, LO 4-4]

WoodGrain Technology makes home office furniture from fine hardwoods. The company uses a job-order costing system and predetermined overhead rates to apply manufacturing overhead em! to jobs. The predetermined overhead rate in the Preparation Department is based on machine· hours, and the rate in the Fabrication Department is based on direct labor-hours. At the beginnin1 of the year, the company 's management made the following estimates for the year:

Department

Machine-hours .. .. ............... . .................. . Direct labor-hours .. . . ........ . ....... . ....... .. .. . ... . Direct materials cost .................................. . Direct labor cost ..................................... . Fixed manufacturing overhead cost .... . ... . ............. . Variable manufacturing overhead per machine-hour ......... . Variable manufacturing overhead per direct labor-hour ....... .

Preparation

80,000 35,000

$190,000 $280,000

$256,000

$2.00

21,000

50,000 $400,000

$530,000

$520,000

$4.00

Job 127 was started on April 1 and completed on May 12. The company 's cost records sho~ the following information concerning the job:

Machine-hours .............. . .. . Direct labor-hours ............... . Direct materials cost ............. . Direct labor cost ................ .

Required:

Department

Preparation

350

80 $940 $710

Fabrication

70

130

$1,200 $980

1. Compute the predetermined overhead rate used during the year in the Preparation Depart· ment. Compute the rate used in the Fabrication Department.

2. Compute the total overhead cost applied to Job 127. 3. What would be the total cost recorded for Job 127? If the job contained 25 units, what would

be the unit product cost? 4. At the end of the year, the records of WoodGrain Technology revealed the following actual

cost and operating data for all jobs worked on during the year:

Machine-hours ............ . .... . Direct labor-hours .......... . . . .. . Direct materials cost .... . ....... . . Manufacturing overhead cost ...... .

Department

Preparation

73,000

30,000 $165,000

$390,000

Fabrication

24,000 54,000

$420,000 $740,000

What was the amount of underapplied or overapplied overhead in each department at the end of the year?

PROBLEM 4-22 Multiple Departments; Overhead Rates; Underapplied or Overapplied Overhead [LO 4-1, LO 4-2, LO 4-3, LO 4-4]

Winkle, Kotter, and Zale is a small law firm that contains 10 partners and 10 support persons. The firm employs a job-order costing system to accumulate costs chargeable to each client, and it is organized into two departments-the Research and Documents Department and the Litigation

Job-Order Costing

Department. The firm uses predetermined overhead rates to charge the costs of these departments

to its clients. At the beginning of the current year, the firm 's management made the following esti-

mates for the year:

Research-hours . .............. . . Direct attorney-hours ........ . ... . Materials and supplies .. ....... . . . Direct attorney cost . ............. . Departmental overhead cost ...... .

Department

Research and Documents

20,000 9,000

$18,000 $430,000

. $700,000

Litigation

16,000 $5,000

$800,000 $320,000

The predetermined overhead rate in the Research and Documents Department is based on research-hours, and the rate in the Litigation Department is based on direct attorney cost.

The costs charged to each client are made up of three elements: materials and supplies used, direct attorney costs incurred, and an applied amount of overhead from each department in which work is performed on the case.

Case 618-3 was initiated on February 10 and completed on June 30. During this period, the following costs and time were recorded on the case:

Research-hours ..... . ....... ... . Direct attorney-hours ............ . Materials and supplies .. ......... . Direct attorney cost .............. .

Required:

Department

Research and Documents

18 9

$50 $410

Litigation

42 $30

$2,100

I. Compute the predetermined overhead rates used during the year in the Research and Docu- ments Department and the Litigation Department.

2. Using the rates you computed in (1) above, compute the total overhead cost applied to Case618-3.

3. What would be the total cost charged to Case 618-3? Show computations by department and in total for the case.

t At the end of the year, the firm's records revealed the following actual cost and operating data for all cases handled during the year:

Research-hours ... . ......... . .. . Direct attorney-hours ... .......... . Materials and supplies ..... .. ... . . Direct attorney cost ............ . . . Departmental overhead cost .... .. .

Department

Research and Documents

23,000 8,000

$19,000 $400,000 $770,000

Litigation

15,000 $6,000

$275,000 $300,000

Determine the amount of underapplied or overapplied overhead cost in each department for the year.

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