Foster Corporation applies manufacturing overhead using a predetermined overhead rate based on direct labor hours. Foster...
Foster Corporation applies manufacturing overhead using a predetermined overhead rate based on direct labor hours. Foster closes any differences between actual and applied overhead to Cost of Goods Sold. During the year, Foster incurred manufacturing overhead costs of $3,175. The predetermined overhead rate is $5.00 per direct labor hour, the direct labor rate is $15 per hour, the direct materials cost is $2,750, and the total product cost is $14,500. The journal entry to close out the difference between actual and applied overhead will include: a debit or credit to COGS of how much.
Homework Answers
The actual journal entry to close out the difference between actual and applied overhead will include:
- a debit to COGS, $237.5
Given
Predetermined overhead rate = $5 per direct labor hour
Actual manufactiring overhead = $3175
Actual labor wage rate = $15 per hour
Direct material costs = $2750
Total product cost = $14500
In order to know the difference between actual and applied overhead, we need to know applied overhead which is based actual direct labor hours. So now we need to calaculate the actual direct labor hours.
Let 'X' be the actual direct labor hours
We know that
Total product cots = direct materials + direct labor + applied overhead
=> $14500 = $2750 + (direct labor hrs×wage rate) + (direct labor hrs×predetermined overhead rate)
=> $14500 = $2750 + $15X + $5X
=> $14500 - $2750 = $20X
=> $20X = $11750
=> X = $11750/$20
=> X = 587.5 hours
Therefore, Direct labor hours = 587.5 hours
Now
APPLIED OVERHEAD
= Direct labor hours × predetermined overhead rate
= 587.5 hrs × $5
= $2937.5
Therefore,
Overapplied or underapplied overhead
= Actual manufacturing overhead - Applied manufacturing overhead
= $3175 - $2937.5
= $237.5 underapplied
(Since applied overhead > actual overhead)
The actual Journal entry to be made for underapplied overhead is
Manufacturing overhead a/c Dr. $237.5
To Overhead a/c $237.5
From the above entry, it is clear that the entry includes a debit to manufacturing overhead of amount $237.5
______×_______
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