Answer:
Manufacturing overhead rate is $2.36 per machine hour
Under applied overhead is $69,100
Journal Entry
Dr. Cost of Goods Sold $69,100
Cr. Manufacturing overhead $69,100
Explanation:
Manufacturing overhead rate is calculated by dividing the Estimated overhead with the estimated level of activity on which the overhead is allocated. It is a rate at which the overhead is allocated to a product / project/ department.
Manufacturing overhead rate = Estimated overhead / Estimated activity
Manufacturing overhead rate = Estimated overhead / Estimated machine hours
Manufacturing overhead rate = $297,124 / 125,900 machine hours
Manufacturing overhead rate = $2.36 per machine hour.
If the applied manufacturing cost is more than the actual cost incurred cost, then overheads are over-applied and If applied overhead cost is less than the actual cost then it is under-applied.
Applied over head = Manufacturing overhead rate x Actual machine hours = $2.36 x 130,700 = $308,452
Under applied overhead = Actual Overhead - Applied Overhead = $377,552 - $308,452 = $69,100
As the actual overhead value is more than the applied, so the overhead is under applied.
Journal Entry for Under applied overhead.
Dr. Cost of Goods Sold $69,100
Cr. Manufacturing overhead $69,100
