Question

Burger Company had the following inventories at the beginning and end of the month of January.

	January 1	January 31
Finished Goods	125,000	117,000
Work-in-process	235,000	251,000
Direct materials	134,000	124,000

The following additional manufacturing data was available for the month of January.

Direct materials purchased	$189,000
Purchase returns and allowances	1,000
Transportation in	3,000
Direct labor	300,000
Actual factory overhead	175,000

Burger Company applies factory overhead at a rate of 60 percent of direct labor cost, and any overapplied or underapplied factory overhead is deferred until the end of the year, December 31.

Burger Company's balance in factory overhead control for January was:

Question 2 options:

	$5,000 credit-underapplied
	$5,000 debit-underapplied
	$5,000 debit-overapplied
	$5,000 credit-overapplied

Answer 1

Actual Factory Overheads = $1,75,000

Applied Factory Overheads = 60% of Direct Labour Cost = 60% of $3,00,000 = $1,80,000

This is the case of Overapplied Overheads. Overapplied Overhead occurs when expenses actually incurred are less than what a company accounts for in its budget i.e. Applied Overheads.

Overapplied Overheads = Applied Factory Overheads - Actual Factory Overheads = $1,80,000 - $1,75,000 = $5,000

Journal Entry for Overapplied Overheads:

Factory Overhead Control A/c Dr $5,000

To Costing P&L A/c Cr $5,000

Burger Company's balance in Factory Overhead Control A/c for January : $5,000 Debit - Overapplied