Question

Calculate and Use Overhead Rate

Selected data for the consulting department of Kingman Consulting, Inc., follow:

Estimated consulting overhead cost for the year	$1,215,000
Estimated direct labor cost for the year (@ $9/hr.)	810,000
Actual manufacturing overhead cost for May	78,000
Actual direct labor cost forMay (2,400 hours)	66,000

Assuming that direct labor cost is the basis for applying consulting overhead,

a. Calculate the predetermined overhead rate.

Answer%

b. Prepare a journal entry that applies consulting overhead for May.

General Journal
Description	Debit	Credit
Consulting overhead, Cost of goods sold, Finished goods inventory or Work in process inventory	Answer	Answer
Consulting overhead, Cost of goods sold, Finished goods inventory or Work in process inventory	Answer	Answer

c. By what amount is consulting overhead over- or underapplied in May?

Consulting overhead was over-applied or under-applied by $Answer in May.

Answer 1

a.

Predetermined overhead rate = $1,215,000 / $810,000 = 150%

b.

Applied overhead = $66,000 X 150% = $99,000

Description	Debit	Credit
Work in process inventory	$99,000	-
Consulting overhead	-	$99,000
(To record overhead applied)

c.

If applied overhead is more than actual overhead, then the overhead is over applied.

Over applied overhead = $99,000 - $78,000 = $21,000

Consulting overhead was over-applied by $21,000 in May.