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ABC manufacturing company submits the following information on March 31, 2011:
Material used Rs.440,000
Direct labor 290,000
Indirect labor 46,000
Light & power 4,260
Depreciation 4,700
Repairs to machinery 5,800
Miscellaneous factory overhead 29,000
WIP inventory, April 1, 2010 41,200
Finished goods inventory, April 1, 2010 34,300
WIP inventory, March 31, 2011 42,500
Finished goods inventory, March 31, 2011 31,500
The company applies factory overhead on the basis of 30% of direct labor cost.
Required:
The amount of over/under applied factory overhead cost
Adjustment of over/under applied FOH cost in the entire productionregarding the facotry o/h cost,
the company use 30% of Direct labor 290,000 to absorb O/H
so the budgeted O/H = 0.3*290,000=87,000
acutal O/H incurred:
Indiret Labor: 46,000
Light power: 4260
Repair machine:5800
Miscellaneous factory overhead 29,000
total: 85,060
so O/H was over absorbed = 87000-85060=1940Adjustment of over/under applied FOH cost in the entire production.
This needs to take
1)Dep into account (4700)
2)Decrease in stock ( assume inv is valued at full cost, 2800 units increase will need adj on o/h )
3)inrease in WIP ( assume only material has been used, otherwise, we should have beem told the % of input of labor. so it’s not relevant)for discussion….
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