Question

Calculating the Predetermined Overhead Rate, Applying Overhead to Production, Reconciling Overhead at the End of the Year, Adjusting Cost of Goods Sold for Under- and Overapplied Overhead At the beginning of the year, Horvath Company estimated the following: Overhead $486,400 Direct labor hours 95,000 Horvath uses normal costing and applies overhead on the basis of direct labor hours. For the month of January, direct labor hours were 7,830. By the end of the year, Horvath showed the following actual amounts: Overhead $476,100 Direct labor hours 93,500 Assume that unadjusted Cost of Goods Sold for Horvath was $707,000. Required: 1. Calculate the predetermined overhead rate for Horvath. Round your answer to the nearest cent. per direct labor hour 2. Calculate the overhead applied to production in January. (Note: Round to the nearest dollar.) 3. Calculate the total applied overhead for the year.

Answer 1

Ans. 1	Predetermined overhead rate   =   Budgeted overhead cost / Budgeted Direct labor hours
		$486,400 / 95,000
		$5.12 per direct labor hour
Ans. 2	Overhead applied in January = Actual direct labor hours * Predetermined overhead rate
		7,830 * $5.12
		$40,090
Ans. 3	Overhead applied for the year = Actual direct labor hours * Predetermined overhead rate
		93,500 * $5.12
		$478,720
Ans. 4	Over applied overhead = Applied overhead -   Actual overhead
		$478,720 - $476,100
		$2,620
	If the applied overhead is greater than the Actual overhead
	it means that the overhead is over applied.
Ans. 5	Particulars	Amount
	Un adjusted cost of goods sold	$707,000
	Less: Over applied overhead	-$2,620
	Adjusted cost of goods sold	$704,380
	*Over applied overhead is deducted and under applied overead is added to Un adjusted
	cost of goods sold for the calculation of Adjusted cost of goods sold amount.