Question

selected data for the consulting

Selected data for the consulting department of Austin Consulting, Inc., follow: Estimated consulting overhead cost for the year $297,000 Estimated direct labor cost for the year (@ $9/hr.) 270,000 Actual manufacturing overhead cost for January 17,600 Actual direct labor cost for January (1,200 hours) 12,100 Assuming that direct labor cost is the basis for applying consulting overhead, a. Calculate the predetermined overhead rate. b. Prepare a journal entry that applies consulting overhead for January General Journal Description Debit Credit c. By what amount is consulting overhead over or underapplied in January? Consulting overhead was • by $ in January

Answer 1

a. Predetermined overhead rate [Refer working note 1]

110%

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b. Journal Entry
Description	Debit	Credit
Work-in Process Inventory        [Actual direct labor cost x Overhead rate = $12,100 x 110%]	$13,310
Consulting Overhead		$13,310

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c. By what amount is consulting overhead over or under applied
Consulting overhead was	Underapplied	by	$4,290 [Refer working note 2]	in January

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Working note 1 - Calculation of Predetermined overhead rate
Estimated Overhead                                (a)	$297,000
Estimated direct labor cost                      (b)	$270,000
Predetermined Overhead rate                   (a / b)	110%

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Working note 2 - Calculation of under or over applied overhead
Actual overhead cost                                                (a)	$17,600
Overhead applied work-in-process inventory          (b)	$13,310
Under-applied overhead                                           (a - b)	$4,290