Question

Tomek Company uses a job costing system that applies factory overhead on the basis of direct labor hours. The company’s factory overhead budget for the current year included the following estimates:

Budgeted total factory overhead	$	980,000
Budgeted total direct labor hours		70,000

At the end of the year, the company shows these results:

Actual factory overhead	$	992,250
Actual direct labor hours		70,500

Required:

1. Compute the firm’s predetermined factory overhead rate for the current year.

2. Calculate the amount of overapplied or underapplied overhead.

3. Prepare a journal entry to transfer the underapplied or overapplied overhead to the Cost of Goods Sold account.

Complete this question by entering your answers in the tabs below.

• Required 1
• Required 2
• Required 3

Compute the firm’s predetermined factory overhead rate for the current year.

Predetermined factory overhead rate

per direct labor hour

Answer 1

1.

Predetermined overhead rate = Budgeted total factory overhead/Budgeted total direct labor hours

= 980,000/70,000

= $14 per direct labor hour

2.

Factory overhead applied = Actual direct labor hours x Predetermined overhead rate

= 70,500 x 14

= $987,000

Actual factory overhead = $992,250

Under applied factory overhead = Actual factory overhead- Factory overhead applied

= 992,250-987,000

= $5,250

3.

General Journal	Debit	Credit
Cost of goods sold	5,250
Factory overhead		5,250
( To record under applied factory overhead)

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