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choosing a driver for overhead allocation.

Jim’s Furniture Inc. manufactures furniture in NY. Jim’s uses job-order costing system and uses machine hours to allocate overhead costs. Estimated overhead for the year was $800,000 and estimated machine hours were 50,000 hours. Total machine hours used to the end of November were 45,000 hours. Total actual overhead to the end of November was $680,000. Raw materials inventory at the end of November was $400,000. Jim’s uses a first in first out basis for inventory and calculating COGS. Direct labor is paid $20 per hour in 2017. A summary of Jim’s finished goods inventory for the end of November (beginning of December) is shown below:

DescriptionQuantityUnit CostTotal Cost
Large tables1,3405675,040
Small tables1,8504583,250
Lounge chairs1,5903250,880

On Nov. 30th, 2017 Jim’s had the following jobs in work in process inventory:

Job #DescriptionQuantityAccumulated cost
01Large tables3,000$90,000
02Lounge chairs4,00042,000

Mike’s also had the following production information for the month of December 2017:

Job #DescriptionQuantity startedMachine hoursDirect labor hoursRaw material usedQuantity completed
01Large tables3,000800 hrs200 hrs$150,0003,000
02Lounge chairs4,000820 hrs780 hrs60,0004,000
03Umbrellas1,500300 hrs300 hrs37,5000
04Small tables7,0002,350 hrs2,400 hrs230,0007,000
05Chairs7,500700 hrs400 hrs120,0000
Total4,970 hrs597,500

Note: All raw materials can be directly traced to a furniture.

Jim’s sold 1,300 chairs, 3,500 large tables, and 4,600 lounge chairs in December 2017.

In December 2017, total materials purchased were $200,000, supervisors’ salary was $18,000, and machine depreciation was $44,000. There was no other manufacturing overhead occurred in this month.


1. Determine the ending balance of the following accounts at the end of December to help Jim’s prepare for the 2017 annual financial statements. (Hint: calculate the predetermined overhead rate to allocate overhead.) Please round to nearest dollar.

2. Calculate the amount of under- or over – applied overhead for 2017.

3. Discuss whether Jim’s should use direct labor hours instead of machine hours to apply their overhead, considering the “criteria” for choosing a driver for overhead allocation.

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