Chloe Corp uses a job order costing system with manufacturing
overhead applied to products on the basis of direct labor hours.
For the upcoming year, Chloe Corp estimated total manufacturing
overhead cost at $784,700 and total direct labor hours of 41,300.
During the year actual manufacturing overhead incurred was $749,000
and 40,900 direct labor hours were used.
(a) Calculate the predetermined overhead rate.
(b) Calculate how much manufacturing overhead will be applied to production.
(c) Is overhead over - or underapplied? By how much? (Input the amount as positive value.)
(d) What account should be adjusted for over - or underapplied overhead? Should the balance be increased or decreased?
IN THE BOOKS OF CHLOE CORP
(a) Predetermined Overhead Rate=Estimated manufacturing overhead cost/Total Direct labour hours.
=$ 7,84,700/41300 hours
= $ 19/direct labour hour
(b) Manufacturing Overheads applied to production= Pre determined overheads recovery rate * Actual direct labour hours
= $ 19/hour* 40,900 hours
= $ 7,77,100
(c ) Overheads are OVER-APPLIED by $ 28,100
(d ) Cost of goods sold account should be adjusted for over and under applied overheads. Since this is a case of over-applied overheads , the cost of goods sold account should be decreased.
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