Let’s get started. We are going to make two batches of chicken pot pies. As a factory, we anticipated or estimated manufacturing overhead at \$2,000,000. Our cost driver is determined to be direct labor. We have estimated direct labor hours of 100,000. Therefore, our predetermined overhead rate is:

\$ ____________ / ______________ = \$ _______________ per direct labor hour

Therefore, the standard cost per pot pie can be computed at:

 Dir. mat. \$0.25 Dir. labor (.02 hours @ \$10 per hour) \$0.20 MOH (.02 hours @ ____ per hour) \$ ____ Standard cost per pie \$ ____

You will need the following T accounts:

• Wages/Accounts Payable
• Work in Process
• Selling, General & Administrative Expense (SG&)
• Raw Material Inventory – Beginning Balance \$40,000
• Supply Inventory – Beginning Balance \$5,000
• Accumulated Depreciation
• Finished Goods
• Cost of Goods Sold
• Accounts Receivable
• Sales Revenue
1. I am predetermined overhead rate of _______. The total estimate amount of manufacturing overhead for the year \$2,000,000. It is estimated 100,000 direct labor hours will be worked during the year.

1 I am the production foreman.  I get to work and clock in.  I work the entire day and supervise everyone’s activities.  I earn \$100 for the day with fringe benefits.

2 I am the chicken for the chicken pot pies.

500 pounds is removed from the freezer and taken to the production area.  At standard or normal cost, my value is \$2500.  The batch will produce 10,000 very fancy pot pies.

3 I am the cook, I take the chicken and add it to the batch of water, carrots, celery, potatoes and flour.  I spend three hours cooking the food.  I earn \$10 an hour with fringes.

4 I am the USDA inspector.  When I walk in, everyone sits down. \$4000 in wages are incurred by cooks while I walk around.

5 I am the electric bill for the plant.  My total is \$5000

6 I am the tax bill for the plant.  My bill is \$7000

7 I am the hazardous waste disposal bill.  My total is \$800.

8 I am the Marketing Director, I earn \$260,000 a year working part-time or \$2600 a day – We will record today’s cost only.

9 I am the quality control supervisor.  I earn \$67,600 a year or \$260 a day.  We will record today’s cost only.

10 I am the heating bill for the fancy office building housing the president.  My total is \$30,000 for the month.  We will record the cost for the month.

11 I am glue brought over to the packaging area for sealing the boxes of pot pies – value \$10

12 I am the specialty cook called in to work one hour of overtime to add a special touch to the pot pie.  My hourly wage is \$10, but my overtime pay is a total of \$15 per hour

13 I am the depreciation on the oven used to cook the pies \$5000.

14 I am the total number of other labor hours for the other cooks spent on the batch of pot pies 196 hours at \$10 per hour.

15 I am the overhead that needs to be applied.

16 I am the 10,000 finished pot pie.  I am moved to the completed pot pie freezer.

We start a new batch

17a.  I am the raw materials used for the new batch:   2250 pounds at \$5 per pound is removed from the Raw Material Inventory & Transferred to WIP

17 b.  I am 900 hours worked on the new batch – \$10 per hour is paid

17 c.  I am the manufacturing overhead applied to this job with 900 hours worked, and 2250 of materials used

18 I am an additional 45,000 pot pies transferred to the finished pot pie freezer – You will need to record the completion of the pot pies.

18.5 Pies costing \$45,000 are sold on account at 200% of cost (Two Entries)

19 I am the end of the month, and it is time to deal with the under/over applied inventory