Question

Clemmens Company applies overhead based on direct labor cost. Estimated overhead and direct labor costs for the year were $120,500 and $124,100, respectively. During the year, actual overhead was $106,500 and actual direct labor cost was $110,800. The entry to close the over- or underapplied overhead at year-end, assuming an immaterial amount, would include

Answer 1

Answer:

Under/over applied overhead= $1,164.48 overapplied

Explanation:

Giving the following information:

Estimated overhead and direct labor costs for the year were $120,500 and $124,100, respectively. During the year, actual overhead was $106,500 and actual direct labor cost was $110,800.

First, we need to calculate the predetermined overhead rate:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Predetermined manufacturing overhead rate= 120,500/124,100

Predetermined manufacturing overhead rate= $0.971

Now, we can allocate overhead:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Allocated MOH= 0.971*110,880= $107,664.48

Finally, we determine the over/under allocation:

Under/over applied overhead= real overhead - allocated overhead

Under/over applied overhead= 106,500 - 107,664.48

Under/over applied overhead= $1,164.48 overapplied