(Appendix 4A) Predetermined Overhead Rates, Variances, Cost Flows Barrymore Costume Company, located in New York City, sews costumes for plays and musicals. Barrymore considers itself primarily a service firm, as it never produces costumes without a preexisting order and only purchases materials to the specifications of the particular job. Any finished goods ending inventory is temporary and is zeroed out as soon as the show producer pays for the order. Overhead is applied on the basis of direct labor cost. During the first quarter of the year, the following activity took place in each of the accounts listed: Job 32 was the only job in process at the end of the first quarter. A total of 1,000 direct labor hours at $10 per hour were charged to Job 32. Required: 1. Assuming that overhead is applied on the basis of direct labor cost, what was the overhead rate used during the first quarter of the year? 2. What was the applied overhead for the first quarter? The actual overhead? The under- or overapplied overhead? 3. What was the cost of goods manufactured for the quarter? 4. Assume that the overhead variance is closed to the cost of goods sold account. Prepare the journal entry to close out the overhead control account. What is the adjusted balance in Cost of Goods Sold? 5. For Job 32, identify the costs incurred for direct materials, direct labor, and overhead.
Solution Summary: The author explains how to calculate the overhead rate for the first quarter of the year.
Barrymore Costume Company, located in New York City, sews costumes for plays and musicals. Barrymore considers itself primarily a service firm, as it never produces costumes without a preexisting order and only purchases materials to the specifications of the particular job. Any finished goods ending inventory is temporary and is zeroed out as soon as the show producer pays for the order. Overhead is applied on the basis of direct labor cost. During the first quarter of the year, the following activity took place in each of the accounts listed:
Job 32 was the only job in process at the end of the first quarter. A total of 1,000 direct labor hours at $10 per hour were charged to Job 32.
Required:
1. Assuming that overhead is applied on the basis of direct labor cost, what was the overhead rate used during the first quarter of the year?
2. What was the applied overhead for the first quarter? The actual overhead? The under- or overapplied overhead?
3. What was the cost of goods manufactured for the quarter?
4. Assume that the overhead variance is closed to the cost of goods sold account. Prepare the journal entry to close out the overhead control account. What is the adjusted balance in Cost of Goods Sold?
5. For Job 32, identify the costs incurred for direct materials, direct labor, and overhead.
Definition Definition Total cost of procuring or producing a product or the cost that an individual or business owner undertakes for the manufacturing of goods.
All standard costing methods use the predetermined overhead rate to apply factory overhead. This is based on an estimated amount that is calculated during the budgeting process at the beginning of the year. Therefore, there will almost always be a variance between the factory overhead that is applied and the actual factory overhead that is accumulated. These variances should be a minimal amount, but may sometimes be material. Therefore, it is important that an accountant find the cause of the variance, so as not to repeat it. Determining the reasons for variances is an important part of the overall process of variance analysis. Certain causes are commonly attributed to specific variances. Match each reason with the variance(s) it commonly creates. Each numbered item has one or more correct answer(s). Each lettered item may be used once, more than once, or not at all.
A change in the quality of materials purchased
A new supplier contract
Error in the accounting records
Change in…
The cost accountant of L. Rosales, Inc. is considering to use the ABC system in determining the cost of its products. At present, the company uses the traditional costing systems wherein factory overhead costs are allocated based on direct labor hours. This cost accountant believes that the present system may be providing misleading cost information, hence, the plan to change to ABC system.
For the coming period, the company is planning to use 5,000 direct labor hours, and its total budgeted factory overhead amounts to P 90,000, broken down as follows:
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           Activity                                  Cost Driver                 Budgeted Activity     Budgeted Cost
Sets up cost              Number of set ups                  40                   P 20,000
Production monitoring    Number of batches                 20                     40,000
Quality control         Number of inspections           1,000                30,000
Total overhead…
The cost accountant of L. Rosales, Inc. is considering to use the ABC system in determining the cost of its products. At present, the company uses the traditional costing systems wherein factory overhead costs are allocated based on direct labor hours. This cost accountant believes that the present system may be providing misleading cost information, hence, the plan to change to ABC system.
Â
For the coming period, the company is planning to use 5,000 direct labor hours, and its total budgeted factory overhead amounts to P 90,000, broken down as follows:
Â
           Activity                                  Cost Driver                 Budgeted Activity     Budgeted Cost
Sets up cost           Number of set ups                  40                   P 20,000
Production monitoring  Number of batches                 20                     40,000
Quality control        Number of inspections           1,000                30,000
  Total overhead costs…
Chapter 4 Solutions
Managerial Accounting: The Cornerstone of Business Decision-Making
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