Question

Tombert Decorating uses a job order cost system to collect the costs of its interior decorating business. Each client’s consultation is treated as a separate job. Overhead is applied to each job based on the number of decorator hours incurred. Listed below are data for the current year.

Estimated overhead		$1,040,000
Actual overhead		$1,040,800
Estimated decorator hours		40,000
Actual decorator hours		39,600

The company uses the account Operating Overhead in place of Manufacturing Overhead and the account Service Contracts in Process in place of Work in Process.

Compute the predetermined overhead rate.

Predetermined overhead rate

$Type your answer here

per decorator hour

eTextbook and Media

List of Accounts

  

  

Prepare the entry to apply the overhead for the year. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation	Debit	Credit

eTextbook and Media

List of Accounts

  

  

Determine whether the overhead was under- or overapplied and by how much.

Overhead

$Type your answer here

Choose your answer here                                                                      OverappliedUnderapplied

Please post math/explanation with answer.

Answer 1

Solution:

1)

Compute predetermined overhead rate:

Predetermined overhead rate = Budgeted overhead / Budgeted decorator hours

=$1,040,000/40,000

=$26

2)

Journal entry to apply the overhead

Date	Account title and explanation	Debit	Credit
	Work in process	$1,029,600
	Operating overhead		$1,029,600
	(39,600 *$26)

3)

Determine whether the overhead was under- or overapplied

Actual overhead	$1,040,800
Applied overhead	$1,029,600
Balances	$11,200 (underapplied)

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