Question

Predetermined Overhead Rate, Overhead Variances, Journal Entries

Craig Company uses a predetermined overhead rate to assign overhead to jobs. Because Craig's production is machine intensive, overhead is applied on the basis of machine hours. The expected overhead for the year was $4,599,000, and the practical level of activity is 365,000 machine hours.

   During the year, Craig used 371,000 machine hours and incurred actual overhead costs of $4,586,600. Craig also had the following balances of applied overhead in its accounts:

Work-in-process inventory	$	556,600
Finished goods inventory		601,975
Cost of goods sold		1,866,425

Required:

1. Compute a predetermined overhead rate for Craig. Round your answer to the nearest cent.

$___ per machine hour

2. Compute the overhead variance, and label it as under- or overapplied.
$ ___overapplied

3. Assuming the overhead variance is immaterial, prepare the journal entry to dispose of the variance at the end of the year.

	Overhead control		___
	Cost of goods sold		___

3. If an overhead variance is immaterial, it is assigned to cost of goods sold.

4. Assuming the overhead variance is material, prepare the journal entry that appropriately disposes of the overhead variance at the end of the year. If an amount box does not require an entry, leave it blank.

	Overhead control		____
	Work-in-process inventory		____
	Finished goods inventory		____
	Cost of goods sold		____

Answer 1

Solution = 1२.6 /MH i) (4599000 / 365000) ) predetormined ovenhead rate = Actual overhead 4586600 4674600 Less: Appked ovahead 3न०o0x 1२.6० ] 88000 (overappleed) 3) Account tite and explanatton Gedet Debit ovenhead Control 88000 Cost of goods Sold 88000 [ To close the overkppleed ovenhead] 88000 Oveahead control work in process Inventory [556600/302500ó)x 88000 fincshed goods Inverntory [ GO1975/3025o00]X B8000 16192 17512 Cost of goods Sold [ 1866 425/3025000] X88000 54296 [To close the overappled ovenhead] 556600 + 6o1975 +1866425 = 302500o.