Question

During May, Bergen Company accumulated 2,500 hours of direct labor costs on job 200 and 3,000 labor hours on job 305. The total direct labor incurred at a rate of $28 per direct labor hour for job 200 and $24 per direct labor hour for job 305. Bergen Company estimates that total factory overhead costs will be $620,000 for the year. direct labor hours are estimated to be 80,000. For Bergen Company,
(a) determine the predetermined factory overhead rate using direct labor hours as the activity base
(b) determine the amount of factory overhead applied to jobs 200 and 305 in May using the information on direct labor hours.
(c) journalize the the entry to record the flow of labor costs into production during May
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Answer 1

Answer:

a. $7.75 per direct labor hour.

b. Job 200 = $19,375 and Job 305 = $23,250

c. Journal

Work In Process : Job 200 $19,375 (debit)

Work In Process : Job 200 $23,250 (debit)

Overheads $42,625 (credit)

Explanation:

Predetermined factory overhead rate = Budgeted Fixed Costs ÷ Estimated Direct Labor Hours

                                                              = $620,000 ÷  80,000

                                                              = $7.75 per direct labor hour.

Application of Overheads.

Job 200 = Actual Labor hours × Predetermined factory overhead rate

             = 2,500 hours × $7.75

             = $19,375

Job 305 = Actual Labor hours × Predetermined factory overhead rate

             =  3,000 hours × $7.75

             = $23,250