Question

Exercise 15-13 Tombert Decorating uses a job order cost system to collect the costs of its interior decorating business. Each client’s consultation is treated as a separate job. Overhead is applied to each job based on the number of decorator hours incurred. Listed below are data for the current year. Estimated overhead $1,000,000 Actual overhead $1,014,800 Estimated decorator hours 40,000 Actual decorator hours 40,200 The company uses Operating Overhead in place of Manufacturing Overhead.

Compute the predetermined overhead rate. Predetermined overhead rate $ per decorator hour

Prepare the entry to apply the overhead for the year. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation	Debit	Credit

Determine whether the overhead was under- or overapplied and by how much.

Overhead

$

OverappliedUnderapplied

Answer 1

Predetermined overhead rate

Predetermined overhead rate = Estimated overhead / Estimated decorator hours

= $1,000,000 / 40,000 hours

= $25.00 per decorator hour

The journal entry to apply the overhead for the year

Accounts Tittles and Explanations	Debit ($)	Credit ($)
Contract in process A/c [40,200 Hours x $25.00 per hour]	1,005,000
To Operating Overhead A/c		1,005,000
[The journal entry to apply the overhead for the year]

The under-applied overhead

The under-applied overhead = Actual overhead costs – Applied overhead

= $1,014,800 - $1,005,000

= $9,800 [Under-applied overhead]