- This topic has 6 replies, 3 voices, and was last updated 10 years, 1 month ago by .
-
Topic
-
How do you know when to use manufacturing overhead applied vs manufacturing overhead incurred? I have an example question for reference:
Under Tall Co’s job order costing system manufacturing overhead is applied to work in process using predetermined annual overhead rate. During January 2013, Tall’s transactions included the following:
DM issued to production 80,000
IM issued to production 8,000
Manufacturing OH incurred 105,000
Manufacturing OH applied 103,000
DL costs 107,000
Tall had neither beginning nor ending WIP inventory. What is the cost of jobs completed in January 2013?
A: 310,000
B: 290,000
C: 302,000
D: 282,000
B: This answer is correct. The requirement is to determine the cost of jobs completed in January 2013. In a job order costing system, manufacturing overhead cannot be traced to specific jobs. Instead, overhead is accumulated in an overhead control account and applied to work performed based on some predetermined overhead rate. The difference between actual and applied overhead is normally either allocated to work in process, finished goods, and cost of goods sold or written off to cost of goods sold. In this case the cost of jobs completed is being determined for January only. Under- or overapplied overhead is not usually considered on a monthly basis. Therefore, the cost of jobs completed should include allocated overhead only. The amount of indirect materials issued to production has already been included in overhead applied. These costs do not need to be considered again in determining the cost of jobs completed. The cost of jobs completed can be computed as follows:
Direct materials issued to production $ 80,000
Manufacturing overhead applied 103,000
Direct labor costs 107,000
Cost of jobs completed $ 290,000
- You must be logged in to reply to this topic.