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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. 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.
Expert Solution
| 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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