Question

Problem 5 (Textbook Reference: P2-6)-Compute predetermined overhead rate and transfer under or-overapplied overhead to cost of goods sold Speedy Delivery, Inc, transports computer equipment for various computer manufacturers. Speedy applies overhead to jobs using a predetermined overhead rate based on truck miles. Estimated data for 2014 are: Estimated truck miles Estimated overhead for hauling operations (equivalent to manufacturing overhead Required: a. Compute the predetemined overhead rate per mile. b. Assume that in 2014, actual manufacturing overheadfohag operations amounted to S15 million, and 24 million 20 million $12 million truck miles were driven. Compute the amount of underapplied or overapplied manufacturing overhead for 2014. c. Prepare the joumal entry to transfer underapplied or overapplied overhead to Cost of Goods Sold

Answer 1

Part A

Predetermined overhead rate = estimated overhead costs /estimated overhead driver = $12 million / 20 million milesm= $0.60 per mile

Therefore,

Predetermined overhead rate = $0.60 per truck mile.

Part B

Manufacturing overhead

Actual overhead rate	applied overhead rate
$15 million	$ 14.4 million ($0.60 per mile*24 million miles)
$0.60 million underapplied

Applied manufacturing overhead = predetermined overhead rate * actual miles = 0.6*24 million = 14.4 million.

15 million - 14.4 million = 0.60 million

Part C

Journal entry	debit	credit
COGS	0.60 million
Manufacturing overhead		0.60 million

Underapplied manufacturing overhead cost is added to COGS.