Case study on company expenses
Gyllstrom Products, Inc., uses a predetermined overhead rate in its production, assembly, and testing departments. One rate is used for the entire company; it is based on machine hours. The rate is determined by analyzing data from the previous year to determine the percentage change in costs. Thus this year’s overhead rate will be based on the percentage change multiplied by last year’s costs. The following data are available:
Last Year’s Costs
Machine hours 38,000
Overhead costs
Indirect materials $58,000
Indirect labor 25,000
Supervision 41,000
Utilities 11,200
Labor-related costs 9,000
Depreciation, factory 10,500
Depreciation, machinery 27,000
Property taxes 3,000
Insurance 2,000
Miscellaneous overhead 5,000
Total overhead $191,700
This year the cost of indirect materials is expected to increase by 30 percent over the previous year. The cost of indirect labor, utilities, machinery depreciation, property taxes, and insurance is expected to increase by 20 percent over the previous year. All other expenses are expected to increase by 10 percent over the previous year. Machine hours for this year are estimated at 45,858.
. Compute the projected costs, and use those costs to calculate the overhead rate for this year.
2. During this year, the company completed the following jobs using the machine hours shown:
Job no. Machine Hours Job no. Machine Hours
H–142 7,840 H–201 10,680
H–164 5,260 H–218 12,310
H–175 8,100 H–304 2,460
Determine the amount of overhead applied to each job. What was the total overhead applied during this year?
3. Actual overhead costs for this year were $234,000. Was overhead underapplied or overapplied this year? By how much? Should the Cost of Goods Sold account be increased or decreased to reflect actual overhead costs?
4. At what point during this year was the overhead rate computed? When was it applied?
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