Question

eBook Calculator Predetermined Overhead Rate, Overhead Variances, Journal Entries Craig Company uses a predetermined overhead rate to assign overhead to jobs. Because Craig's production is machine intensive, overhead is applied on the basis of machine hours. The expected overhead for the year was $5,515,200, and the practical level of activity is 383,000 machine hours. During the year, Craig used 390,500 machine hours and incurred actual overhead costs of $5,553,200. Craig also had the following balances of applied overhead in its accounts: Work-in-process inventory $ 622,200 Finished goods inventory 622,200 Cost of goods sold 1,805,600 Required: < 1. Compute a predetermined overhead rate for Craig. Round your answer to the nearest cent. per machine hour 2. Compute the overhead variance, and label it as under-or overapplied. 3. Assuming the overhead variance is immaterial, prepare the journal entry to dispose of the variance at the end of the year. 4. Assuming the overhead variance is material, prepare the journal entry that appropriately disposes of the overhead variance at the end of the year. If an amount box does not require an entry, leave it blank.

Answer 1

1. pre determined overhead rate = total overhead/machine hours

=$5,515,200/383,000

=$14.40 per machine hours

2.(Over) under Applied Overhead = Actual overhead-overhead applied

Overhead applied= Pre determined OH rate *actual machine hours

=$14.40*390,500 machien hours

=$5,623,200

.(Over) under Applied Overhead = Actual overhead-overhead applied

=$5,553,200-$5,623,200

=$70,000 overapplied

3.variance is immaterial will be closed to cost of goods sold account

	Account	Debit	Credit
	Overhead control	$70,000
	Cost of goods sold		$70,000

4.if the variance is material it will proportionately divided among work in process finished goods and cost of goods sold

Account	Debit	Credit
Overhead control	$70,000
Work in process inventory [$622,200/3,050,000]*70,000		$14,280
Finsihed goods inventory [$622,200/3,050,000]*70,000		$14,280
Cost of goods sold [$1,805,600/3,050,000]*70,000		$41,440

*$622,200+$622,200+$1,805,600

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=$3,050,000