Clemmens Company applies overhead based on direct labor cost. Estimated overhead and direct labor costs for the year were $118,500 and $125,600, respectively. During the year, actual overhead was $108,000 and actual direct labor cost was $115,800. The entry to close the over - or underapplied overhead at year-end, assuming an immaterial amount, would include

For passing the journal entry, first, we have to compute the predetermined overhead rate to know that whether the overhead is under applied or over applied.

Predetermine overhead rate = Estimated overhead cost : direct labor cost

= $118,500 : $125,600

=0.94

Now, we can compute the under applied or over applied overhead which is shown below:

= Actual direct labor cost * Pre determined overhead rate - actual overhead

= $115,800 * 0.94 - $108,000

= $108,852 - $108,000

= $852

Since the amount is in positive, so it is over applied overhead and the journal entry is given below:

Manufacturing overhead A/c Dr $852

To Cost of goods sold $852

(Being over applied overhead closed)