Question

Bouldevard Inc. estimates that the factory overhead for the following year will be $975,000. The company has decided that the basis for applying factory overhead should be machine hours, which is estimated to be 48,000 hours. The total machine hours for the year were 49,250. The actual factory overhead for the year was $1,198,500 Note: Round to the nearest cent "You must provide calculations to receive credit. a. Compute the predetermined factory overhead rate. b. Determine the amount of factory overhead applied to Job 867 if the amount of machine hours is 1,260 and to Job 5309 if the amount of machine hours is 925. c. Compute the over-or under-applied amount for the year. d. Journalize the entry to transfer the over- or under-applied factory overhead to cost of goods sold.

Answer 1

Solution to part (a):-

Pre-determine factory overhead

= (Budgeted overhead / budgeted basis)

= ($975,000 / 48,000 machine hours)

= $20.31 per machine hour

Solution to part (b):-

Step 1:- computation of Actual overhead per machine hour:-

( Actual overhead / Actual Basis)

=( $ 1,198,500 / 49,250 Machine hours)

= $ 24.33 per machine hour

Step 2:- Distribution of overhead between Job 867 & job 5309:-

(Actual overhead rate per machine hour * Machine hour worked under each job)

For Job 867 = ($24.33 * 1260 Machine hour) = $ 30,656

For job 5309 = ( $ 24.33 * 925 Machine hour) = $ 22,505

Solution to part (c):-

At the end of the periode ,we compare Estimated overhead with Actual overhead

Estimated Overhead ($975,000) < Actual Overhead ($1,198,500) .

= Differece is the Under Applied Overhead ($1,198,500 - $975,000) = $ 223,500

So, The amount of under applied overhead = $ 223,500

Solution to part (d):-

The journal entry for under applied overhead:-

Cost of goods sold Account............Debit $ 223,750

Factory Overhead Account ........................................Credit $ 223,750

(To recorde the transfer of under applied factory overhead to cost of goods sold)