SUBMITTED TO: JALAL AHMAD KHAN

NAME: OSAMA YAQOOB

ID# 63125
ASSIGNMENT# 3
COURSE: MANAGERIAL ACCOUTING

3-1
Why aren’t actual manufacturing overhead costs traced to jobs just as direct materials
and direct labor costs are traced to jobs?

ANSWER
Overhead costs are defined as expenses that cannot be directly linked to products or jobs. As a
result, overhead costs must be allocated rather than tracked if they are to be attributed to
products or jobs.

3-7
What factors should be considered in selecting a base to be used in computing the predetermined
overhead rate?

ANSWER
To add overhead to jobs, a defined overhead rate is employed. It's calculated by dividing the
period's estimated total manufacturing overhead by the period's expected total amount in the
allocation base before the period starts. The set overhead rate is then multiplied by the actual
amount of the allocation base that is incurred for each job, and overhead is applied to jobs.
Direct work hours are the most typical allocation basis.
 3–10
What is underapplied overhead? Overapplied overhead? What disposition is made of
these amounts at the end of the period?

ANSWER:
When the real overhead cost exceeds the amount of overhead cost applied to Work in Process
inventory during the period, this is known as under applied overhead.
When the real overhead cost is less than the amount of overhead cost applied to Work in
Process inventory during the period, this is known as over applied overhead.
Closing out the amount to Cost of Goods Sold or allocating the amount among Cost of Goods
Sold and ending inventories in proportion to the applied overhead in each account is how
under- or over applied overhead is disposed of.
EXERCISE 3–19
Applying Overhead; Journal Entries; T-Accounts [LO1, LO2, LO3, LO4, LO5]
Custom Metal Works produces castings and other metal parts to customer specifications. The
company uses a job-order costing system and applies overhead costs to jobs on the basis of machine
hours. At the beginning of the year, the company used a cost formula to estimate that it would incur
$4,320,000 in manufacturing overhead cost at an activity level of 576,000 machine-hours.
The company had no work in process at the beginning of the year. The company spent the
entire month of January working on one large order—Job 382, which was an order for 8,000
machined parts. Cost data for January follow:
a. Raw materials purchased on account, $315,000.
b. Raw materials requisitioned for production, $270,000 (80% direct and 20% indirect).
c. Labor cost incurred in the factory, $190,000, of which $80,000 was direct labor and $110,000
was indirect labor.
d. Depreciation recorded on factory equipment, $63,000.
e. Other manufacturing overhead costs incurred, $85,000 (credit Accounts Payable).
f. Manufacturing overhead cost was applied to production on the basis of 40,000 machine-hours
actually worked during January.
g. The completed job was moved into the finished goods warehouse on January 31 to await
delivery to the customer. (In computing the dollar amount for this entry, remember that the
cost of a completed job consists of direct materials, direct labor, and applied overhead.)
Required:
1. Prepare journal entries to record items (a) through (f) above. Ignore item (g) for the moment.
2. Prepare T-accounts for Manufacturing Overhead and Work in Process. Post the relevant items
from your journal entries to these T-accounts.
3. Prepare a journal entry for item (g) above.
4. Compute the unit product cost that will appear on the job cost sheet for Job 382.
ANSWER

Ref Account Debit Credit

a Raw material 3,15,000
Accounts payable 3,15,000

b1 Work in process 216,000

Raw material 216,000

b2 Manufacturing 54,000
overhead

Raw material 54,000

c1 Work in process 80,000

Labor cost 80,000

c2 Manufacturing 1,10,000
overhead

Labor cost 1,10,000

d Manufacturing 63,000
overhead

Depreciation 63,000

e Manufacturing 85,000
overhead

Accounts payable 85,000

f Work in process 30,000

Manufacturing 30,000
overhead

g Finished goods 3,26,000

Work in process 3,26,000
T Accounts:
Accounts payable
Ref Debit Ref Credit
a 3,15,000
e 85,000

Depreciation
Ref Debit Ref Credit
d 63,000

Finished goods
Ref Debit Ref Credit
g 3,26,000

Labor cost
Ref Debit Ref Credit
C1 80,000
C2 1,10,000

Manufacturing overhead
Ref Debit Ref Credit
b2 54,000
C2 1,10,000
d 63,000
e 85,000
f 30,000
 Raw material
Ref Debit Ref Credit
a 3,15,000
b1 2,16,000
b2 54,000

Work in process
Ref Debit Ref Credit
b1 2,16,000
C1 80,000
f 30,000
g 3,26,000

Unit product cost=326000/8000=40.75

Overhead applied;

Overhead cost 4320000

Estimated hours 576000
Cost per hour 7.5
Hours used 4000
Cost applied 30000