Question

Cambridge Manufacturing Company applies manufacturing overhead on the basis of machine hours. At the beginning of the year, the company estimated its total overhead cost to be $325,000 and machine hours to be 25,000. Actual manufacturing overhead and machine hours were $372,000 and 26,000, respectively.

Required:

1. & 2. Prepare the journal entries for actual and applied manufacturing overhead and transfer of manufacturing overhead account balance to cost of goods sold.

a) record actual manufacturing overhead cost incurred

b).record the application of manufacturing overhead to production

c). record the transfer of manufacturing overhead account balance to cost of goods sold

Answer 1

Working note 1 - Calculation of overhead rate
Estimated Overhead                                (a)	$325,000
Estimated machine hours                         (b)	25000
Overhead rate                                      (a / b)	$13	per hour

.

Working note 2 - Calculation of under or over applied overhead
Actual overhead cost                                                (a)	$372,000
Overhead applied to work-in process inventory          (b)	$338,000
Under-applied overhead                                           (a - b)	$34,000

.

.

Transaction	General Journal	Debit	Credit
a.	Manufacturing overhead	$372,000
	Cash, Payables, etc		$372,000
b.	Work-in Process Inventory        [Actual machine hours x Overhead rate = 26,000 hours x $13 per hour]	$338,000
	Manufacturing Overhead		$338,000
c.	Cost of Goods Sold           [Refer working note 2]	$34,000
	Manufacturing overhead		$34,000