High Desert Potteryworks makes a variety of pottery products that it sells toretailers such as Home Depot. The company uses a job-order costing systemin which predetermined overhead rates are used to apply manufacturingoverhead cost to jobs. The predetermined overhead rate in the MoldingDepartment is based on machine-hours, and the rate in the PaintingDepartment is based on direct labour cost. At the beginning of the year, thecompany's management made the following estimates:

Department
Molding / Painting
Direct labour-hours / 12,000 / 60,000
Machine-hours / 70,000 / 8,000
Direct materials cost / $510,000 / $650,000
Direct labour cost / $130,000 / $420,000
Manufacturing overhead cost / $602,000 / $735,000

Job 205 was started on August I and completed on August 10. The company's

cost records show the following information concerning the job:

Department
Molding / Painting
Direct labour-hours / 30 / 85
Machine-hours / 110 / 20
Materials placed into production / $470 / $332
Direct labour cost / $290 / $680

Required:

1. Compute the predetermined overhead rate used during the year in theMolding Department. Compute the rate used in the Painting Department.

My answer)

POHR (Molding) = $602,000/70,000mh = $8.6

POHR (Painting) = $735,000/420,000DLC = $1.75

2. Compute the total overhead cost applied to Job 205.

My answer)

Molding = $8.6 X 110mh = $946

Painting = $1.75 X $680 = $1,190

Therefore, Total OH= $2,136

3. What would be the total cost recorded for Job 205? If the job contained 50units, what would be the unit product cost?

My answer)

Job 205
Molding / Painting
Direct Materials cost / $470 / $332
Direct labour cost / $290 / $680
Manufacturing overheard cost / $946 / $1190
Total cost / $1,706 / $2,202
Total cost of Job 205 / $3,908

If, the job contained 50 units, product cost will be $470X50units = $23,500 in Molding, $332X50units = $16,600 in Painting.

4. At the end of the year, the records of High Desert Potteryworks revealedthe following actual cost and operating data for all jobs worked on duringthe year:

Department
Molding / Painting
Direct labour-hours / 10,000 / 62,000
Machine-hours / 65,000 / 9,000
Direct materials cost / $430,000 / $680,000
Direct labour cost / $108,000 / $436,000
Manufacturing overhead cost / $600,000 / $750,000

What was the amount of underapplied or overapplied overhead in eachdepartment at the end of the year?

My answer)

Molding = overapplied overhead $2,000

Painting = underapplied overhead $15,000

5. Assume the company closes any underapplied or overapplied overheaddirectly to Cost of Goods Sold. Prepare the appropriate journal entry.

My answer)

Overhead is over applied by $2,000 in Molding department, isunder applied by $15,000 in Painting department and, for the year. The entry to close this balance to Cost of Goods Sold would be:

Manufacturing Overhead……………………………. $2,000

Cost of Goods Sold………………………………. $2,000

Cost of Goods Sold……………………………………$15,000

Manufacturing Overhead……………………..... $15,000

6. Assume the company closes any underapplied or overapplied overheaddirectly to the appropriate inventory and Cost of Goods Sold accounts onthe basis of their endingbalances at the end of the year. The balances inthe inventory and cost of goods sold accounts are as follows:

Raw materials $ 350,000
Work-in-process 140,000
Finished Goods 700,000
Cost of Goods Sold 1,960,000

Prepare the journal entry to show the allocation.

My answer)

Molding department (Overapplied)

Allocation of $2,000
Raw materials $ 350,000
Work-in-process 140,000
Finished Goods 700,000
Cost of Goods Sold 1,960,000 / 11%
5%
22%
62% / 220
100
440
1,240
Total 3,150,000 / 100% / 2,000

Painting department (Underapplied)

Allocation of $15,000
Raw materials $ 350,000
Work-in-process 140,000
Finished Goods 700,000
Cost of Goods Sold 1,960,000 / 11%
5%
22%
62% / 1,650
750
3,300
9,300
Total 3,150,000 / 100% / 15,000

The entry to close this balance to Cost of Goods Sold would be:

Manufacturing Overhead……………………………. $2,000

Raw materials……………………………………. $220

Work-in-process…………………………………. $100

Finished Goods………………………………….. $440

Cost of Goods Sold……………………………… $1,240

Raw materials…………………………………….... $1,650

Work-in-process…………………………………… $750

Finished Goods……………………………………… $3,330

Cost of Goods Sold…………………………………… $9,300

Manufacturing Overhead……………………..... $15,000

Can you give me answer?

7. How much higher or lower will net operating income be for the year if the

underapplied or overapplied overhead is allocated rather than closed

directly to Cost of Goods Sold.

8. Provide two reasons why overhead might be under applied in a given year.