Question

Clemmens Company applies Overhead based on direct labor cost Estimated overhead and direct labor costs for the year were $113,500 and 124.800 respectively. During the year, actual overhead was 07200 and actual direct labor cost was $18.500 The entry to close the ove or underapplied overhead at year enda n gan material amount would include(Round predetermined overhead rate to nearest whole percentage.) M e Choice O Adebit to Work in Process inventory for $635 O Acrede to Factory Overhead for $635. O Acredito Come Goods Sold for $636 O Acredito F ed Goods O O A Cost of Good Sold for 635 DOLL

Answer 1

Option (c) is correct

A credit to cost of goods sold for $635

First we will calculate pre determined overhead rate as per below:

Pre determined overhead rate = Estimated overheads / Estimated direct labor cost

Putting the given values in the above formula, we get,

Pre determined overhead rate = $113500 / $124800 = $0.9095 = 91%

Next, we will calculate applied overheads as below:

Applied overheads = Pre determined overhead rate * Actual direct labor cost

Applied overheads = 91% * $118500 = $107835

Next, we will calculate under or over applied overheads as per below:

Actual overheads (given) = $107200, Applied overheads = $107835

Since actual overheads are less than applied overheads, so it is over applied overheads.

Over applied overheads = Applied overheads - Actual overheads

Over applied overheads = $107835 - $107200 = $635

Journal entry to transfer over applied overheads is:

Debit Manufacturing overhead $635

Credit Cost of goods sold $635