Question

Calculate the pre-determined overhead rate and put your answer in the appropriate T-Account. After recording all entries pertaining to the information above, review the account for overhead to determine if it is over or under-applied. Make the appropriate adjustment using the T-accounts to address this issue.

• Work done in previous periods included $30,000 of raw materials and $55,000 of conversion cost.
• This month, the company purchased $175,000 of raw materials, which gave them a total of $199,000 available for use. Actual material usage for the month was $162,000.
• The company’s average wage rate for assembly workers is $27 per hour. This month, there were a total of 1,400 man-hours incurred for this type of work.
• Overhead is applied to production based on man hours. The budget for the month called for $300,000 of overhead and 1,500 man-hours. Actual overhead costs were tabulated at the end of the month and totaled $315,000.  

Answer 1

Predetermined overhead rate =Estimated overhead /Estimated Man hours

                  = 300000 / 1500

                  = $ 200 per man hour

MANUFACTURING OVERHEAD
Actual overhead	315000	Appied overhead (1400 actual man hours *200)	280000
Bal	35000
		Cost of goods sold (underapplied closed)	35000
Bal	0

Since the actual overhead is greater than applied overhead ,overhead is underapplied by 35000.Assuming the amount is not material therefor underapplied overhead is closed to cost of goods sold .