Answer:
1) Overhead Rate: 75,000 / 25,000 = $3 per hour
2) Overhead Applied: 74,000 * 3 = $72,000
3) Work in progress / Inventory (Debit) 2,000
Manufacturing overheads (Credit) 2,000
Explanation:
1) Overhead rate: Estimated overhead / Estimated Machine Hours
Overhead rate: $75,000 / 25,000
Overhead rate: $3 per hour
2) Total 24,000 machines hours worked during the period
Overhead applied: Total hours worked * rate per hour (calculated above)
Overhead applied: 24,000 * 3
Overhead applied: $72,000
3) Actual overhead expenses amounted to $74,000, however actual overhead applied are $72,000 (calculated above), thus there is under-application of $2,000. Following journal entry is made to record this application and charge the same either to finished goods / work in progress or cost of goods sold, depending whether the goods are still in work in process, finished goods or the goods have been sold.
Work in progress / Inventory (Debit) 2,000
Manufacturing overheads (Credit) 2,000
