At the beginning of the year, Custom Manufacturing set its predetermined overhead rate using the following estimates: overhead costs, $1,240,000, and direct materials costs, $400,000.At year-end, the company reports that actual overhead costs for the year are $1,249,900 and actual direct materials costs for the year are $400,000.Determine the predetermined overhead rate using estimated direct materials costsEnter the actual overhead costs incurred and the amount of overhead cost applied to jobs during the year using the predetermined overhead rate. Determine whether overhead is over- or underapplied (and the amount) for the year.Prepare the entry to close any over- or underapplied overhead to Cost of Goods Sold.
Question
At the beginning of the year, Custom Manufacturing set its predetermined overhead rate using the following estimates: overhead costs, 400,000.At year-end, the company reports that actual overhead costs for the year are 400,000.Determine the predetermined overhead rate using estimated direct materials costsEnter the actual overhead costs incurred and the amount of overhead cost applied to jobs during the year using the predetermined overhead rate. Determine whether overhead is over- or underapplied (and the amount) for the year.Prepare the entry to close any over- or underapplied overhead to Cost of Goods Sold.
Solution
Step 1: Determine the predetermined overhead rate using estimated direct materials costs
The predetermined overhead rate is calculated by dividing the estimated overhead costs by the estimated direct materials costs.
Predetermined Overhead Rate = Estimated Overhead Costs / Estimated Direct Materials Costs Predetermined Overhead Rate = 400,000 = 3.1
So, the predetermined overhead rate is 3.1.
Step 2: Enter the actual overhead costs incurred and the amount of overhead cost applied to jobs during the year using the predetermined overhead rate.
Actual Overhead Costs = $1,249,900
Overhead Cost Applied to Jobs = Predetermined Overhead Rate * Actual Direct Materials Costs Overhead Cost Applied to Jobs = 3.1 * 1,240,000
Step 3: Determine whether overhead is over- or underapplied (and the amount) for the year.
Overhead is overapplied if the overhead cost applied to jobs is greater than the actual overhead costs, and underapplied if the overhead cost applied to jobs is less than the actual overhead costs.
Overhead Applied - Actual Overhead = 1,249,900 = -$9,900
Since the result is negative, the overhead is underapplied by $9,900.
Step 4: Prepare the entry to close any over- or underapplied overhead to Cost of Goods Sold.
Since the overhead is underapplied, the journal entry to close the underapplied overhead to Cost of Goods Sold is:
Debit: Cost of Goods Sold 9,900
This entry increases the Cost of Goods Sold and decreases the Manufacturing Overhead by the amount of the underapplied overhead.
Similar Questions
Use the following information to answer the next question:Estimated manufacturing overhead$520,000Estimated machine hours16,000Actual machine hours worked15,000Actual overhead costs incurred: Indirect materials$180,000 Indirect labour$135,000 Utilities$ 40,000 Insurance$ 20,000 Rent$150,000If the company uses a predetermined overhead rate to apply overhead, manufacturing overhead applied would be:Question 2Select one:a.$487,500b.$520,000c.$525,000d.$554,667
Multiple Choice Question Estimated manufacturing overhead$500,000Estimated direct labor cost$250,000Actual manufacturing overhead$720,000Actual direct labor cost$300,000 Based on this information, the predetermined overhead rate per direct labor dollar is:Multiple choice question.$2.88$2.00$1.67 $2.40
Estimated manufacturing overhead$450,000Estimated direct labor hours150,000Actual manufacturing overhead$405,000Actual direct labor hours180,000 Based on this information, the predetermined overhead rate per direct labor hour is $. (Enter your answer as a whole number.)
Kelsh Company uses a predetermined overhead rate based on machine hours to apply manufacturing overhead to jobs. The company has provided the following estimated costs for next year: Direct materials $10,000Direct labour 30,000Sales commissions 40,000Salary of production supervisor 20,000Indirect materials 4,000Advertising expenses 8,000Rent on factory equipment 10,000Kelsh estimates that 5,000 direct labour hours and 10,000 machine hours will be worked during the year. What will be the predetermined overhead rate per hour?
Our company manufactures a single product. The production budget indicates that the number of units expected to be produced are 193,000 in October, 201,500 in November, and 198,000 in December. We assign variable overhead at a rate of $0.75 per unit of production. Fixed overhead equals $150,000 per month. Compute the total budgeted overhead that would appear on the factory overhead budget for month of October.Group of answer choices$343,000.$150,000.$144,750.$301,125.$294,750.
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.