Question

1. Consider the following selected cost data for the Clypton Company for 2019.

Budgeted manufacturing overhead costs $1,500,000

Budgeted machine-hours 150,000

Actual manufacturing overhead costs $1,300,000

Actual machine-hours 125,000

The company uses normal costing. Its job-costing system has a single manufacturing overhead cost pool. Costs are allocated to jobs using a budgeted machine-hour rate. Any amount of under- or overallocation is written off to Cost of Goods Sold.

1. Compute the budgeted manufacturing overhead rate.
2. Calculate the manufacturing overhead allocated during 2019.
3. Compute the amount of under- or overallocation of manufacturing overhead. Is the amount material? Prepare a journal entry to dispose of this amount.

Answer 1

Answer(1) Budgeted manufacturing overhead rate = Budgeted manufacturing overhead Budgeted machine hours $1,500,000 150,000 $10 per machine hour Answer(2) 125,000 Actual machine hours Budgeted manufacturing overhead rate = Manufacturing overhead allocated during 2019 $10 per machine hour 125,000 * $10 $1,250,000 Answer(3) Actual manufacturing overhead cost $1,300,000 Manufacturing overhead allocated during 2019 $1,250,000 Underapplied manufacturing overhead Actual overhead - Applied overhead $1,300,000 - $1,250,000 $50,000 Yes, the amount of underapplied overhead is material Credit Account Debit Cost of goods sold $50,000 Manufacturing Overhead (To record underapplied overheads) $50,000