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 (Round predetermined overhead rate to nearest whole percentage.)

Answer 1

Answer:

Explanation:

For computing the over-applied or under-applied first, we have to compute the predetermined overhead rate. The formula is shown below:

Predetermined overhead rate = (Total estimated manufacturing overhead) ÷ (estimated direct labor cost)

= $120,500 ÷ $124,100

= 97.09%

Now we have to find the actual overhead which equal to

= Actual direct labor cost × predetermined overhead rate

= $110,800 × 97.09%

= $107,585

So, the ending overhead equals to

= Actual manufacturing overhead - actual overhead

= $106,500 - $107,585

= $1,085

The journal entry is shown below:

Manufacturing overhead A/c Dr $1,085

         To Cost of goods sold $1,085

(Being over-applied overhead is closed)