Question

Aspen Company estimates its manufacturing overhead to be $ 553,300 and its direct labor costs to be $ 503,000 for year 2. Aspen worked on three jobs for the year. Job 2-1, which was sold during year 2, had actual direct labor costs of $ 370,000. Job 2-2, which was completed, but not sold at the end of the year, had actual direct labor costs of $ 222,000. Job 2-3, which is still in work-in-process inventory, had actual direct labor costs of $ 148,000. Actual manufacturing overhead for year 2 was $ 801,100. Manufacturing overhead is applied on the basis of direct labor costs.

Required:

Prepare an entry to allocate over-or underapplied overhead to Work in Process, Finished Goods and Cost of Goods Sold. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

The first answer wasn't way off.

POHR (Predetermined Overhead Rate):

Estimated Overhead Cost / Estimated Allocation Base (Direct Labor Cost)

                           553,300 / 503,000 = 1.10 or 110%

Applied Overhead:

740,000* x 110% = 814,000

*The 740,000 is acquired by the sum of the Jobs: 

  Job 2-1: 370,000

  Job 2-2: 222,000

  Job 2-3: 148,000

             = 740,000

Actual Manufacturing Overhead is given: 801,100.

Under or Over- Applied Manufacturing Overhead:

Actual Manufacturing Overhead	801,100
Less: Manufacturing Overhead Applied	814,000
Overapplied Manufacturing Overhead	12,900

*Note: It is overapplied because the Manufacturing Overhead Applied is higher than the Actual Manufacturing Overhead. It would be Underapplied if the Actual Manufacturing Overhead would be higher than the Manufacturing Overhead Applied.

Journal Entry Calculations:

1. 

Job 2-1	$370,000	*110%	= $407,000
Job 2-2	$222,000	*110%	= $244,200
Job 2-3	$148,000	*110%	= $162,800

2. 

Job 2-1: (407,000/ 814,000)* 12,900 = 6,450

Job 2-2: (244,200/ 814,000)* 12,900 = 3,870

Job 2-3: (162,800/ 814,000)* 12,900 = 2,580

3. Worksheet

General Journal	Debit	Credit
Applied Manufacturing Overhead	814,000
Cost of Goods Sold		6,450
Finished Goods Inventory		3,870
Work-In-Process Inventory		2,580
Manufacturing Overhead Control		801,100

Answer 2

Overhead rate = 553300/503000 = 110% of labor cost

Applied overhead = 740000*1.1 = 814000

Actual overhead = 801000

Over applied overhead = 814000-801000 = 13000

Transaction	General journal	Debit	Credit
	Manufacturing overhead	13000
	Cost of goods sold		6500
	Finished goods		3900
	Work in process		2600