2024 – Precision Instruments Inc uses job order costing and applies manufacturing overhead to individual jobs by using predetermined overhead

Precision Instruments, Inc., uses job order costing and applies manufacturing overhead to individual jobs by using predetermined overhead rates. In Department A, overhead is applied on the basis of machine-hours, and in Department B, on the basis of direct labor hours. At the beginning of the current year, management made the following budget estimated as a step toward determining the overhead application rates:

 

                             Department ADepartment B

Direct labor…………$420,000$300,000

Manufacturing overhead…$540,000$412,500

Machine-hours……..    18,000     1,900

Direct labor hours………    28,000    25,000

 

Production of 4,000 tachometers (job no. 399) was started in the middle of January and completed two weeks later. The cost records for this job show the following information:

 

                                                            Department ADepartment B

Job no. 399 (4,000 units of product):

Cost of materials used on job…………….$6,800$4,500

Direct labor cost…………………………..$8,100$7,200

Direct labor hours…..…………………             540    600

Machine-hours………………………….            250    100

 

 

Instructions:

 

a.  Determine the overhead rate that should be used for each department in applying overhead costs to job no. 399.

 

b.  What is the total cost of job no. 399, and what is the unit cost of the product manufactured in this production order?

 

c.  Prepare the journal entries required to record the sale (on account) of 1,000 of the tachometers to SkiCraft Boats. The total sales price was $19,500.

 

d.  Assume that actual overhead costs for the year were $517,000 in Department A and $424,400 in Department B. Actual machine-hours in Department A were 17,000 and actual direct labor hours in Department B were 26,000 during the year. On the basis of this information, determine the over-or underapplied overhead in each department for the year.