Question

Tombert Decorating uses a job order cost system to collect the costs of its interior decorating business. Each client’s consultation is treated as a separate job. Overhead is applied to each job based on the number of decorator hours incurred. Listed below are data for the current year. Estimated overhead $960,000 Actual overhead $982,800 Estimated decorator hours 40,000 Actual decorator hours 40,500 The company uses Operating Overhead in place of Manufacturing Overhead. (a) Compute the predetermined overhead rate. (b) Prepare the entry to apply the overhead for the year. (c) Determine whether the overhead was under- or overapplied and by how much.

Answer 1

Answer:

(A) $24

(B) Work in progress A/c Dr $972,000

        To Manufacturing overhead       $972,000

(Being applied overhead is  recorded)

(C) $10,800  under-applied

Explanation:

(A) The computation of the predetermined overhead rate is  shown below:

Predetermined overhead rate = (Total estimated manufacturing overhead) ÷ (estimated direct labor-hours)

= $960,000 ÷ 40,000 hours

= $24

Now we have to find the actual overhead which equal to

= Actual direct labor-hours × predetermined overhead rate

= 40,500 hours × $24

= $972,000

(B) The journal entry is shown below:

Work in progress A/c Dr $972,000

        To Manufacturing overhead       $972,000

(Being applied overhead is  recorded)

(C) The computation of the under or over applied is shown below:

=  Actual manufacturing overhead - actual overhead

= $982,800 - $972,000

= $10,800 under-applied