Kramer Company Has Decided to Use a Predetermined Rate to Assign

question 74

Essay

Kramer Company has decided to use a predetermined rate to assign factory overhead to production.The following predictions have been made for the current year:
$\begin{array}{lr}\text { Total factory overhead costs } & \$ 150,000 \\\text { Direct labour hours } & 40,000 \text { hours } \\\text { Direct labour costs } & \$ 200,000 \\\text { Machine hours } & 60,000 \text { hours }\end{array}$
a.Compute the predetermined factory overhead rate under three different bases: (1)direct labour hours,(2)direct labour costs,and (3)machine hours.
b.Assume that actual factory overhead was $152,500 and that Kramer elected to apply factory overhead to work in process based on direct labour hours.If actual direct labour was 42,000 hours for 2011,was factory overhead overapplied or underapplied? By how much?
c.Kramer Company follows the policy of writing off any under- or overapplied factory overhead balance to cost of goods sold at the end of the year.Make the entry necessary at the end of 2011 to dispose of the factory overhead balance determined in Part (b).

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Definitions:

Sliding-Scale Standard

A method of adjusting the level of strictness or leniency in the application of a rule or standard based on specific conditions or factors.

Minimum-Contacts Standard

A legal principle determining whether a court in one jurisdiction can claim personal jurisdiction over a defendant from another jurisdiction, based on the defendant's activities within the former jurisdiction.

Exclusive Jurisdiction

A legal term referring to the sole authority of a particular court to hear and decide a specific type of case.

ADR

Alternative Dispute Resolution; methods for resolving disputes outside of the courtroom, including arbitration and mediation.