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29 July, 11:13

Ikerd Company applies manufacturing overhead to jobs on the basis of machine hours used. Overhead costs are estimated to total $300,000 for the year, and machine usage is estimated at 125,000 hours.

For the year, $322,000 of overhead costs are incurred and 130,000 hours are used.

Required:

A) Compute the manufacturing overhead rate for the year. B) What is the amount of under - or overapplied overhead at December 31st? C) Prepare the adjusting entry to assign the under - or overapplied overhead for the year to cost of goods sold.

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  1. 29 July, 11:22
    0
    A. The manufacturing overhead rate for the year is $2.40

    B. The amount of under - or overapplied overhead at December 31st is $10,000

    C. The adjusting entry to assign the under - or overapplied overhead for the year to cost of goods sold would be as follows:

    Debit Credit

    cost of goods sold $10,000

    Manufacturing overhead 10,000

    Explanation:

    A. To calculate the manufacturing overhead rate for the year we would have to use the following formula:

    manufacturing overhead rate=Estimated overhead cost/Estimated machine hours usage

    manufacturing overhead rate=$300,000/125,000

    manufacturing overhead rate=$2.40

    B. To Calculate the amount of under applied or over applied overhead cost we would have to use the following formula:

    manufacturing overhead cost applied=Total machine hours used*manufacturing overhead rate

    manufacturing overhead cost applied=130,000*$2.40

    manufacturing overhead cost applied=$312,000

    under - or overapplied overhead cost=Actual manufactured overhead costs-Manufacturing overhead cost applied

    under - or overapplied overhead cost = $322,000-$312,000

    under - or overapplied overhead cost = $10,000

    C. The adjusting entry to assign the under - or overapplied overhead for the year to cost of goods sold would be as follows:

    Debit Credit

    cost of goods sold $10,000

    Manufacturing overhead 10,000
  2. 29 July, 11:37
    0
    A. $2.40 per Machine hour

    B. Underapplied = $10,000

    C. cost of goods sold (debit) $10,000, overheads (credit) $10,000

    Explanation:

    A) Compute the manufacturing overhead rate for the year

    Overhead Rate = Total Fixed Overheads / Budgeted Activity

    = $300,000 / 125,000 Machine hours

    = $2.40 per Machine hour.

    B) What is the amount of under - or over applied overhead at December 31st?

    Under Applied Overheads = Actual Overheads > Applied Overheads

    Over Applied Overheads = Actual Overheads < Applied Overheads

    Actual Overheads = $322,000

    Applied Overheads = $2.40 * 130,000 hours = $ 312,000

    Underapplied = $10,000

    C) Prepare the adjusting entry to assign the under - or overapplied overhead for the year to cost of goods sold.

    cost of goods sold (debit) $10,000

    overheads (credit) $10,000
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