Question

Selected cost data for Books Co, who apply overhead based on machine hours, are as follows: Estimated overhead cost for the year 840,000 Estimated direct labor cost for the year 1,550,000 Estimated machine hours for the year 70,000 hours 1,160,000 Direct labor cost Depreciation, manufacturing equipment and plant Property taxes on plant 390,000 40,000 Sales salaries 26,500 Delivery driver wages 23,500 Plant maintenance wages 48,000 Machine hours 61,000 hours In the journal entry to adjust over or under applied overhead, what is the impact on Cost of Goods Sold? Indicate a debit as a positive amount and a credit as a negative amount. Enter without dollar signs or commas and round to the nearest whole number.

Answer 1

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Books Co.
Calculation of Predetermined OH Rate	Amount $
Estimated Machine Hours	70,000.00	A
Estimated Overhead cost	840,000.00	B
Predetermined OH Rate	12.00	C=B/A
Calculation of applied OH	Amount $
Machine Hours	61,000.00	D
Predetermined OH Rate	12.00	See C
Overhead applied	732,000.00	E=D*C
Calculation of actual OH costs
Depreciation, manufacturing equipment and plant	390,000.00
Property taxes on plant	40,000.00
Plant maintenance wages	48,000.00
Actual OH costs	478,000.00	F
Answer 3 c
Overhead applied	732,000.00	See E
Actual Overhead	478,000.00	See F
Over applied Overhead	254,000.00	G=E-F
As overhead is over applied so Cost of goods sold will decrease by $ 254,000.
Note: Sales salaries and delivery driver wages are sales related costs and will not be a part of overhead costs.