Question

Southern Rim Parts estimates its manufacturing overhead to be $495,000 and its direct labor costs to be $900,000 for year 1. The first three jobs that Southern Rim worked on had actual direct labor costs of $20,000 for Job 301, $30,000 for Job 302, and $40,000 for Job 303. For the year, actual manufacturing overhead was $479,000 and total direct labor cost was $850,000. Manufacturing overhead is applied to jobs on the basis of direct labor costs using predetermined rates.

Overhead applied in each of the inventory accounts is as follows:

Work-in-process inventory	$	37,400
Finished goods inventory		102,850
Cost of goods sold		327,250

Required:

Prepare an entry to prorate the under- or overapplied overhead. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

OH rate as % of DLC:
Estimated overheads			495000
Divide: Estimated DLC			900000
OH rate as % of DLC:			55%
Actual DLC			850000
Multiply: Oh rate			55%
Overheads applied			467500
Overheads incurred			479000
Overheads under-applied			11500
Inventory	OH applied	Weights	Under-applied	Allocation of
			overheads	under-app oh
WIP	37400	0.08	11500	920
FG	102850	0.22	11500	2530
COGS	327250	0.7	11500	8050
Total	467500	1	11500	11500
Journal entry:
Work in process inventory			920
Finished Goods inventory			2530
Cost of goods sold			8050
Manufacturing overheads				11500