Question

A company applies overhead at a rate of 150% of direct labor cost. Actual overhead cost for the current period is $950,000, and direct labor cost is $600,000.
1. Determine whether there is over- or underapplied overhead using the T-account.
2. Prepare the entry to close over-or underapplied overhead to cost of goods sold.

Answer 1

Answer:

Actual overhead cost for the current period is $950,000,

Actual direct labor cost is $600,000.

Applied overhead cost = 150 % $600,000 = $ 900,000

      Overhead        

Dr                                  Cr

Actual                  Applied

$ 950,000           $ 900,000

                            Bal 50,000

Underapplied Overhead $ 50,000

Journal Entry

This method is used mostly as it easy and short

Cost of Good Sold        $ 50,000 Dr.

Manufacturing Overhead     $ 50,000 Cr.

But actual entry is

Direct LAbor Cost WIP  $ 600,000

Actual Overhead         $ 900,000

Cost of goods Sold    $ 50,000

Manufacturing Overheads        1550,000