Question

Coop's Stoops estimated its annual overhead to be $85,000 and based its predetermined overhead rate on 24,286 direct labor hours. At the end of the year, actual overhead was $90,000 and the total direct labor hours were 24,100. What is the entry to dispose of the overapplied or underapplied overhead?

Answer 1

Journal entry to dispose of the overapplied or underapplied overhead:

General Journal	Debit	Credit
Cost of goods sold a/c	$5650
To Overhead a/c		$5650
(To record the dispose of underapplied overhead)

Given

Actual overhead = $90000

Estimated overhead = $85000

Estimated direct labor hours = 24286 hours

Actual direct labor hours = 24100 hours

That implies,

Predetermined overhead rate

= Estimated overhead ÷ Estimated direct labor hours

= $85000 ÷ 24286 hrs

= $3.5 per hour

Overapplied or Underapplied overhead

= Actual overhead - Applied overhead

= $90000 - (actual direct labor hours × predetermined overhead rate)

= $90000 - (24100 × $3.5)

= $90000 - $84350

= $5650 underapplied

(Since applied overhead < actual overhead)

______×_______

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