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aimtobeacpa
Major Contributor

Joined: 10 Dec 2009
Online Status: Offline
Posts: 657

Posted: 30 Sep 2011 at 18:01 \| IP Logged

Under Heller Company’s job cost system, the estimated
costs of defective workmanship considered normal in the
manufacturing process are included in the predetermined
factory overhead application rate. During March, Job No.
210 for 2,000 hand saws was completed at the following
costs per unit:

Direct materials     $5
Direct labor     $4
Factory overhead (applied at 150%
      of direct labor cost)     $6
      $15

Final inspection of Job No. 210 disclosed 100 defective
saws. These saws were reworked at a cost of $2 per unit
for direct labor. Factory overhead was applied at the
predetermined rate. The defective unit activity on Job
No. 210 falls within the normal range of defective
workmanship. What is the total rework cost for this job
and to what account should it be charged?

Rework cost     Account charged

      A)   &nbs p;&nbs p;
$500     Factory overhead control
      B)   &nbs p;&nbs p;
$200     Work-in-process
      C)   &nbs p;&nbs p;
$200     Factory overhead control
      D)   &nbs p;&nbs p;
$500     Work-in-process
Your answer: A was correct!
cost:
Labor cost (100 units × $2)     $200
Overhead     300(how is it 300??
      $500

The cost of product rework should be charged to the
factory overhead control account, as the predetermined
rate that is used to apply factory overhead to individual
jobs includes an estimate for such costs. The normal
rework costs become part of the factory overhead
production costs that are carried in inventory (work-in-
process and finished goods) until the products are sold.
Any abnormal rework costs during the accounting period
should be charged off at the end of the period and
included in the cost of goods sold amount on Heller
Company's financial statements.

how do we get Overhead     300

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Maribel
Newbie
Newbie

Joined: 25 Apr 2007
Online Status: Offline
Posts: 10

Posted: 04 Oct 2011 at 05:46 \| IP Logged

FOH =150% of direct labor cost ( 200x1.5=300)

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