How to adjust overhead costs
Month Actual Overhead Direct Labour Hours
March $68 200 8 812
April 71 250 8 538
May 68 150 8 740
June 73 500 9 176
July 38 310 2 123
August 70 790 9 218
September 80 350 8 943
October 68 750 8 821
November 68 200 8 794
An assistant has analysed the data for March through July and made the appropriate adjustments except for the following items (for which the assistant was unsure of the proper treatment).
1. The semi-annual property tax bill for Department IP-14 was paid on June 30. The entire amount, $3,000 was charged to overhead for June.
2. The costs to install a new piece of equipment with a life of 10 years in the department were charged to overhead in April. The installation costs were $4,300. Depreciation is calculated using Straight-line method and it is rounded off to the nearest dollar.
3. Factory depreciation is allocated to Department IP-14 every month. The department’s share, $8,000, is included in overhead.
4. A strike closed the plant for three weeks in July. Several non-union employees were kept on payroll during the strike. Their duties were general housekeeping and “busy work.” These costs were charged to overhead.
You also have the details for the overhead account for the months of August and September. They are presented in the following table. In your initial analysis of these months, you found that employees worked on a 5 day week and are paid on a fornightly basis. Furthermore, you were aware that you will be looking for items that are incorrectly allocated to Department IP-14 in these months.
You were hired on October 1 and have been keeping the department accounts since then. Therefore, you know that the data for October and November are correct, except for any adjustments needed for the preceding items.
Department IP-14
Overhead Control
August
Date Explanation Amount
Aug. 4 Miscellaneous supplies $10,450
Aug. 5 Payroll for indirect labor 5,500
Aug. 15 Power costs: Department IP-14 12,250
Aug. 19 Payroll for indirect labor 6,000
Aug. 19 Overtime premium 890
Aug. 24 Factory depreciation 8,000
Aug. 26 Miscellaneous supplies 27,700
Total for August $70,790
Department IP-14
Overhead Control
September
Date Explanation Amount
Sept. 2 Payroll for indirect labor $6,000
Sept. 7 Miscellaneous supplies 12,100
Sept. 15 Power costs: Department IP-14 11,100
Sept. 15 Power costs: Department IB-14 10,850
Sept. 16 Payroll for indirect labor 6,500
Sept. 16 Overtime premium 950
Sept. 21 Miscellaneous supplies 19,350
Sept. 28 Factory depreciation 8,000
Sept. 30 Payroll for indirect labor 5,500
Total for September $80,350
August has 31 days and September has 30 days.
REQUIRED:
A. Using the information provided, adjust the monthly cost data to more accurately reflect the overhead costs incurred during each month.
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