Question

Clemmens Company applies overhead based on direct labor cost. Estimated overhead and direct labor costs for the year were $112,500 and $125,000, respectively. During the year, actual overhead was $107,400 and actual direct labor cost was $120,000. The entry to close the over- or underapplied overhead at year-end, assuming an immaterial amount, would include:

Answer 1

Answer:

Estimated Over head applied = ($112500 / $125000) *100 = 90% of Direct labor cost.

Thus, Actual Over Head applied = 90% of $120000 = $108000

Moreover, Actual Over Head incurred = $107400  

 

Therefore, Overhead Over-applied is to be applied as the Actual Overhead applied is higher than the Actual Overhead Incurred

Overhead Over-applied = $108000 - $107400

Overhead Over-applied = $600

The entry to close the over-applied overhead at year-end would include:

i. Over-head A/c will  be debited for $600

ii. Cost of goods sold will to be credited for $600