Answer:
Part 1. Compute the company%u2019s predetermined overhead rate for the year
Predetermined overhead rate = $15 / Computer Hour
Part 2. Compute the underapplied or overapplied overhead for the year.
Underapplied Overheads are: $1,350,000 - $900,000 = $450,000
Part 3. Assume the company closes any underapplied or overapplied overhead directly to cost of goods sold. Prepare the appropriate journal entry.
Cost of goods sold $450,000 (debit)
Overhead Account $450,000 (credit)
Part 4. Company allocates any underapplied or overapplied overhead to work in process, finished goods, and cost of goods sold on the basis of the amount of overhead applied during the year that remains in each account at the end of the year:
Work In Process $18,000 (debit)
Finished Goods $73,008 (debit)
Cost of Goods Sold $315,000 (debit)
Overhead Account $450,000(credit)
Explanation:
Part 1. Compute the company%u2019s predetermined overhead rate for the year
Predetermined overhead rate = Budgeted Overheads / Budgeted Activity
= $1,275,000/ 85,000
= $15 / Computer Hour
Part 2. Compute the underapplied or overapplied overhead for the year.
Applied Overheads = Actual hours × Predetermined overhead rate
= 60,000 × $15
= $900,000
Actual Overheads = given = $1,350,000
Applied Overheads $900,000 < Actual Overheads $1,350,000, thus we have an underapplied situation
Therefore Underapplied Overheads are: $1,350,000 - $900,000 = $450,000
Part 3. Assume the company closes any underapplied or overapplied overhead directly to cost of goods sold. Prepare the appropriate journal entry.
Cost of goods sold $450,000 (debit)
Overhead Account $450,000 (credit)
Part 4. Company allocates any underapplied or overapplied overhead to work in process, finished goods, and cost of goods sold on the basis of the amount of overhead applied during the year that remains in each account at the end of the year:
Allocations:
Totals Weighted Average% Allocation
Work In Process $43,200 4% $18,000
Finished Goods $280,800 26% $73,008
Cost of Goods Sold $756,000 70% $315,000
Total $1,080,000 100% $450,000
Journals:
Work In Process $18,000 (debit)
Finished Goods $73,008 (debit)
Cost of Goods Sold $315,000 (debit)
Overhead Account $450,000(credit)
