Question

The following information pertains to Trenton Glass Works for the year just ended.

Budgeted direct-labor cost: 75,000 hours (practical capacity) at $16 per hour

Actual direct-labor cost: 80,000 hours at $17.50 per hour

Budgeted manufacturing overhead: $997,500

Actual selling and administrative expenses: 434,000

Actual manufacturing overhead:
Depreciation	$	230,000
Property taxes		22,000
Indirect labor		82,000
Supervisory salaries		200,000
Utilities		58,000
Insurance		30,000
Rental of space		302,000
Indirect material (see data below)		78,000
Indirect material:
Beginning inventory, January 1		49,000
Purchases during the year		93,000
Ending inventory, December 31		64,000

Required:

1. Compute the firm’s predetermined overhead rate, which is based on direct-labor hours.

2. Calculate the overapplied or underapplied overhead for the year.

3. Prepare a journal entry to close out the Manufacturing Overhead account into Cost of Goods Sold.

Answer 1

1)

predetermined overhead rate=Budgeted manufacturing overhead/Budgeted direct-labor hours

predetermined overhead rate=$997500/75000=$13.3 per labour hour

2)

overapplied or underapplied overhead=budgeted overhead for 80000 labor hours-actual overhead for labor hours

budgeted overhead for 80000 labor hours=$13.3*80000=$1064000

actual overhead=$230000+$22000+$82000+$200000+$58000+$30000+$302000+$78000=$1002000

overapplied overhead=$1064000-$1002000=$62000

overapplied overhead occurs when budgeted overhead is greater than actual overhead

3)

	debit	credit
manufacturing overhead	$62000
cost of goods sold		$62000

budgeted overhead is greater than actual overhead,so the cost of goods sold should be decreased by $62000 therefore it is credited and manufacturing overhead is debited