13. LO.1 (Predetermined OH rate) For 2010, Omaha Mechanical has a monthly overhead
cost formula of $42,900 + $6 per direct labor hour. The firm’s 2010 expected annual capacity is 78,000 direct labor hours, to be incurred evenly each month. Making
one unit of the company’s product requires 1.5 direct labor hours.
a. Determine the total overhead to be applied per unit of product in 2010.
b. Prepare journal entries to record the application of overhead to Work in Process
Inventory and the incurrence of $128,550 of actual overhead in January 2010, when
6,390 direct labor hours were worked.
c. Given the actual direct labor hours in part (b), how many units would you have
expected to be produced in January?
14. LO.1 (Predetermined OH rate) Langston Automotive Accessories applies overhead
using a combined rate for fixed and variable overhead. Th e rate is 250 percent of direct
labor cost. During the first three months of the current year, actual costs incurred were as
follows:
Direct Labor Cost Actual Overhead
January $180,000 $440,000
February 165,000 420,400
March 170,000 421,000
a. What amount of overhead was applied to production in each of the three
months?
b. What was the under applied or over applied overhead for each of the three months
and for the first quarter?
16. LO.2 (Under applied or over applied overhead) At the end of 2010, Jackson Tank
Company’s accounts showed a $66,000 credit balance in Manufacturing Overhead
Control. In addition, the company had the following account balances:
Work in Process Inventory $384,000
Finished Goods Inventory 96,000
Cost of Goods Sold 720,000
a. Prepare the necessary journal entry to close the overhead account if the balance is
considered immaterial.
b. Prepare the necessary journal entry to close the overhead account if the balance is
considered material.
c. Which method do you believe is more appropriate for the company and why?
21. LO.4 (High–low method) Information about Indiana Industrial’s utility cost for the
last six months of 2010 follows. The high–low method will be used to develop a cost
formula to predict 2011 utility charges, and the number of machine hours has been
found to be an appropriate cost driver. Data for the first half of 2010 are not being
considered because the utility company imposed a significant rate change as of July 1,
2010.
Month Machine Hours Utility Cost
July 33,750 $13,000
August 34,000 12,200
September 33,150 11,040
October 32,000 11,960
November 31,250 11,500
December 31,000 11,720
a. What is the cost formula for utility expense?
b. What is the budgeted utility cost for September 2011 if 31,250 machine hours are
projected?