Proration of Overapplied or Underapplied Overhead
Midnight Sun Apparel Company uses normal costing, and manufacturing overhead is applied to work- in-process on the basis of machine hours. On January 1 of the current year, there were no balances in work-in-process or finished-goods inventories. The following estimates were included in the current year's budget.
Total budgeted manufacturing overhead | $235,000 |
Total budgeted machine hours | 47,000 |
During January, the firm began the following production jobs:
A79: | 1,000 machine hours |
N08: | 2,500 machine hours |
P82: | 500 machine hours |
During January, job numbers A79 and N08 were completed, and job number A79 was sold. The actual manufacturing overhead incurred during January was $26,000.
Required:
1. Compute the company's predetermined overhead rate for the current year.
2. How much manufacturing overhead was applied to production during January?
3. Calculate the overapplied or underapplied overhead for January.
4. Prepare a journal entry to close the balance calculated in requirement (3) into Cost of Goods Sold.
5. Prepare a journal entry to prorate the balance calculated in requirement (3) among the Work-in-Process Inventory, Finished-Goods Inventory, and Cost of Goods Sold accounts.
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