Question

Moscone Corporation bases its predetermined overhead rate on the estimated labor-hours for the upcoming

year. At the beginning of the most recently completed year, the company estimated the labor-hours for the

upcoming year at 78,000 labor-hours. The estimated variable manufacturing overhead was $9.99 per labor-hour

and the estimated total fixed manufacturing overhead was $985,920. The actual manufacturing overhead for the

year was $1,812,700 and the company’s direct labor workers worked a total of 80,000 labor-hours.

Required:

1. Compute the company's predetermined overhead rate.

2. Compute the amount of manufacturing overhead applied.

3. Is manufacturing overhead overapplied or underapplied? By how much?

4. Prepare the journal entry to close the overapplied or underapplied overhead to Cost of Goods Sold.

Answer 1

Predetermined Overhead rate = these are the rates used to apply the overheads to the products or jobs until the actual overheads cost is made available. The company used this rate to estimate the cost related to job or product. Predetemined Overhead rate = Estimated Manufacturing Overheads / Estimated Base Here , Estimated Overheads = Fixed + Variable manufacturing overheads $ 985,920 + ($ 9.99 per hour * 78000 hours) = $ 1,765,140 Therefore , Predetermined overhead rate = 1765140 / 78000 = $ 22.63 per hour

Amount of Manufacturing Overheads Applied To apply overhead , actual amount of base * predetermined overhead rate Manufacturing Overheads Applied = 80000 hours * $ 22.63 per hour = $1,810,400

Actual Manufacturing Overhead are $ 1,812,700 . Overheads applied are $ 1,810,400 Overheads are under applied by $ 2,300.(1,812,700 - 1,810,400)

Journal entry to record under applied to Cost of Goods Sold JournalDebitCreditCost of Goods Sold2300To Overheads2300 The applied overheads are less than actual overheads , they are under applied and not charged to cost. Hence entry is passed to increrase the Cost of goods sold by that amount.