Question

The Cavy Company estimates that the factory overhead for the following year will be $1,250,000. The company has decided that the basis for applying factory overhead should be machine hours, which is estimated to be 40,000 hours. The machine hours for the month of April for all of the jobs were 4,780. Prepare the journal entry to apply factory overhead.

Answer 1

The predetermined overhead rate is (
1,250,000 / 40,000) =
31.25 per machine hour.
In April, the recorded overhead would have been (4,780 x
31.25) =
149,375
This amount is larger than the actual overhead, so overhead was over-applied by
(
149,375 -
141,800) =
7,575