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Homework answers / question archive / Exercise 2-13 (Video) Tombert Decorating uses a job order cost system to collect the costs of its interior decorating business

Exercise 2-13 (Video) Tombert Decorating uses a job order cost system to collect the costs of its interior decorating business

Accounting

Exercise 2-13 (Video)

Tombert Decorating uses a job order cost system to collect the costs of its interior decorating business. Each client’s consultation is treated as a separate job. Overhead is applied to each job based on the number of decorator hours incurred. Listed below are data for the current year.
 

Estimated overhead   $960,000
Actual overhead   $982,800
Estimated decorator hours   40,000
Actual decorator hours   40,100


The company uses Operating Overhead in place of Manufacturing Overhead and it uses Service Contracts in Process in place of Work in Process.

Compute the predetermined overhead rate.

Prepare the entry to apply the overhead for the year. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Determine whether the overhead was under- or overapplied and by how much.
 

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Predetermined overhead rate  =  Estimated overhead ÷ Estimated decorator hours
   =  $960,000 ÷ 40,000 decorator hours
   = 

$24 per decorator hour

 

 

Service Contracts in Process (40,100 hrs x $24) = $962,400
 

Actual overhead   $982,800    
Applied overhead   962,400    
   Balance   $20,400   underapplied


[$982,800 – (40,100 x $24) = $20,400]

[Act. OH – (Act. dec. hrs. x Predet. OH rate) = Underapp. OH]

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