Question

Osborn Manufacturing uses a predetermined overhead rate of $18.20 per direct labor-hour. This predetermined rate was based on a cost formula that estimates $218,400 of total manufacturing overhead for an estimated activity level of 12,000 direct labor-hours. The company actually incurred $215,000 of manufacturing overhead and 11,500 direct labor-hours during the period. Required: 1. Determine the amount of underapplied or overapplied manufacturing overhead for the period. 2. Assume that the company's underapplied or overapplied overhead is closed to Cost of Goods Sold. Would the journal entry to dispose of the underapplied or overapplied overhead increase or decrease the company’s gross margin

Answer 1

Answer:

COGS 2,020 debit

  Factory Overhead 2,020 credit

Explanation:

rate 18.2

direct labour hours 11,500

Applied overhead = rate x cost driver

18.52 x 11,500 = 212,980 Applied Overhead

To determinate the over or underappliment of the overhead, we subtract applied from actual

212,980 - 215,000 = -2,020

The rate was underapplied, the cost of overhead were 215,000 but we capitalize 212,980.

We should increase the cost capitalized through Cost of Goods Sold:

COGS 2,020 debit

  Factory Overhead 2,020 credit