Question

Milsaps Company produces sportsmen’s digital scales. In preparing the current budget, Milsaps’ controller estimates a total of $319,000 in direct materials cost, $241,000 in direct labor cost, and $337,400 in manufacturing overhead costs. Since much of the production process requires skilled workers to assemble the scales, direct labor cost is used as the overhead application base. At the end of the period, Milsaps reported actual results as follows: direct materials cost of $280,000, direct labor cost of $202,000, and manufacturing overhead cost $278,070.

(a) What is Milsaps’ predetermined overhead rate for the year?

(b).How much manufacturing overhead did Milsaps apply during the year?

(c). What is the journal entry to close overhead if the amount is considered to be insignificant?

Answer 1

Ans. A	Predetermined overhead rate   =   Estimated overhead cost / Estimated Direct labor cost
	$337,400 / $241,000 * 100
	140%
Ans. B	Manufacturing overhead applied = Actual direct labor cost * Predetermined overhead rate
	$202,000 * 140%
	$282,800
Ans. C	Journal entry to record the over applied overhead:
	General Journal	Debit	Credit
	Manufacturing overhead	$4,730
	Cost of goods sold		$4,730
	(To record over applied overhead)
	Over applied overhead = Applied overhead - Actual overhead
	$282,800 - $278,070
	$4,730
	If the applied overhead is greater than the Actual overhead
	it means that the overhead is over applied.