Labor Cost

In December 2012, Yerbury Company’s manager estimated next year’s total direct labor cost assuming 50 persons working an average of 2,000 hours each at an average wage rate of $25 per hour. The manager also estimated the following manufactoring overhead costs for year 2013.

Indirect labor 319200

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Factory supervision 240000

Rent on factury building 140000

Factory utilities 88000

Factory insurance expired 68000

Depreciation- Fcatory equipment 480000

Repairs expense-Factory equipment 60000

Factory supplies used 68800

Miscellaneous production costs 36000

Total estimated overhead costs 1500000

At the end of 2013, records show the company incurred $1,520,000 of actual overhead costs. It completed and sold five jobs with the following direct labor costs: Job 201,$604,000, Job 202,$563,000, Job 203 $298,000; Job 204, $716,000 and Job 2005, $314,000. In addition, Job 206 is in process at the end of 2013 and had been charged $17,000 for direct labor. No jobs were in process at the end of 2012. The company’s predetermined overhead rate is based on direct labor cost.


1. Determine the following:

a. Predetermined overhead rate for year 2013

b. Total overhead cost applied to each of the six jobs during year 2013.

c. Over-or underapplied overhead at year-end 2013.

2.Assuming that any over-or underapplied overhead is not material, prepare the adjusting entry to allocate any over-or underapplied overhead to Cost of good sold at the end of year 2013.

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