Question

Aspen Company estimates its manufacturing overhead to be $625,000 and its direct labor costs to be $500,000 for year 2. Aspen worked on three jobs for the year. Job 2-1, which was sold during year 2, had actual direct labor costs of $195,000. Job 2-2, which was completed, but not sold at the end of the year, had actual direct labor costs of $325,000. Job 2-3, which is still in work-in-process inventory, had actual direct labor costs of $130,000. Actual manufacturing overhead for year 2 was $799,900. Manufacturing overhead is applied on the basis of direct labor costs. Required: Prepare an entry to allocate over- or underapplied overhead to Work in Process, Finished Goods and Cost of Goods Sold. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) ed 10 No Transaction Credit Debit 12,600 А 1 General Journal Applied manufacturing overhead Work in process inventory Finished goods inventory Cost of goods sold OOOOO 2,520 6,300 3,780

Answer 1

Predetemined overhead rate is rate company decide before the start of production based on estmated such as laobur hours , machine hours , number of unit etc

As in Question total estimated overhead for Year 2 and total labour cost is given, hence the predermined overhead are based on Labour cost

Formula for Predetemined overhead = Total Estimated Overhead ÷ Total Estimated Labour cost

=(625000÷500000)×100

Predetermined overhead =125%per labour cost

Calculation of overhead applied based on acutal labour cost

			Allocation of overapplied overhead
Job 2-1 On cost of Goods sold	$195000 ×125%	$243750	$12600×243750/812500 =3780
Job 2-2. On Finished Goods	$325000×125%	$406250	$12600×406250/812500 =6300
Job 2-3 On WIP	$130000×125%	$162500	$12600×162500/812500 =2520
Total Manufacturing overhead applied		$812500

Actual overhead Incurred =799900

Overhead Over or under Applied =812500-799900

=$12600 ( Overapplied)

Entry for application of Estimated Manufacturing overhead and allocation of Over and underapplied overhead

	Debit	Credit
Applied Manufacturing overhead	812500
Work in Process		2520
Finishe goods Inventory		6300
Cost of Goods Sold		3780
Manufacturing overhead control account		799900
(Being Overapplied Manufacturing overhead allocated )