Question

The following data pertain to the Oneida Restaurant Supply Company for the year just ended.

Budgeted sales revenue	$	210,000
Actual manufacturing overhead		364,000
Budgeted machine hours (based on practical capacity)		20,000
Budgeted direct-labor hours (based on practical capacity)		20,000
Budgeted direct-labor rate	$	14
Budgeted manufacturing overhead	$	340,000
Actual machine hours		11,000
Actual direct-labor hours		18,000
Actual direct-labor rate	$	16

Prepare a journal entry to add to work-in-process inventory the total manufacturing overhead cost for the year, assuming:

1. The firm uses actual costing.

2. The firm uses normal costing, with a predetermined overhead rate based on machine hours

Answer 1

Journal entry:-

1. When firm uses actual costing

Work in progress A/c Dr $364000

To Manufacturing overhead A/c $364000

(Being manufacturing overhead is added to work in progress inventory)

2. When firm uses normal costing

In normal costing we need to first calculate pre-determined overhead rate.

Predetermined overhead rate = Total estimated manufacturing overhead ÷ estimated machine hours

=$340000÷20000 hours

=$17

Now Actual overhead is equal to

=Actual machine hours × predetermined overhead rate

=11000 hours × $17

=$187000

Journal entry:-

Work in progress A/c Dr $187000

To Manufacturing overhead A/c $187000

(Being manufacturing overhead is added to work in progress inventory)