Question

Accounting for manufacturing overhead. Creative Woodworking uses normal costing and allocates manufacturing overhead to jobs based on a budgeted labor-hour rate and actual direct labor-hours. Under- or over allocated overhead, if immaterial, is written off to Cost of Goods Sold. During 2017, Creative recorded the following:
Budgeted manufacturing overhead costs $4,140,000
Budgeted direct labor-hours 180,000
Actual manufacturing overhead costs $4,337,000
Actual direct labor-hours 189,000

a. Compute the budgeted manufacturing overhead rate.
b. Prepare the summary journal entry to record the allocation of manufacturing overhead.
c. Compute the amount of under- or overallocated manufacturing overhead. Is the amount significant enough to warrant proration of overhead costs, or should Creative Woodworking write it off to cost of
goods sold? Prepare the journal entry to dispose of the under- or overallocated overhead.

Answer 1

Answer:

a) Budgeted manufacturing overhead rate =  budgeted overhead cost / budgeted labor hours

                                                                       = $ 4,140,000/ 180,000 hrs

                                                                       = $23 per hour.

b. JOURNAL ENTRY

Debit Work in process $4,347,000 Credit Manufacturing overhead $4,347,000

c. under or over applied = Actual overheads - applied

                                        = $4,337,000 - $4,347,000

              Over applied   = 10,000

yes the amount of over applied overheads is significant and material enough and it should be written off against cost of sales.

JOURNAL ENTRY

Debit Manufacturing overheads $10,000 , Credit Cost of sales $10,000

Explanation:

allocated manufacturing overheard = $23 * 189000 hrs = $4,347,000