Question

# The predetermined overhead allocation rate for Newton, Inc., is based on estimated direct labor costs of...

The predetermined overhead allocation rate for Newton, Inc., is based on estimated direct labor costs of \$400,000 and estimated factory overhead of \$800,000. Actual costs incurred were:

 Indirect materials…………………………….. \$17,000 Indirect labor………………………………….. 13,000 Direct materials…………………………… 75,000 Direct labor……………………………….. 30,000 Advertising…………………………. 50,000 Factory depreciation………………………… 17,000 Factory Property taxes……………………... 12,000 Sales Commissions ………………………………..... 100,500

(a)    Calculate the predetermined overhead rate and calculate the overhead applied during the year.

(b)   Determine the amount of over- or underapplied overhead and state whether it was under or overapplied. Prepare the journal entry to eliminate the over- or underapplied overhead.

a.

Estimated direct labor cost = \$400,000

= 800,000/400,000

= 200% of direct labor cost

Actual direct labor cost = \$30,000

= 30,000 x 200%

= \$60,000

Actual overhead = Indirect materials + Indirect labor + Factory depreciation + Factory Property taxes

= 17,000+13,000+17,000+12,000

= \$59,000

The overhead applied during the year = \$59,000

b.

= 60,000-59,000

= \$1,000

 General Journal Debit Credit Factory overhead \$1,000 Cost of goods sold \$1,000 ( To eliminate over applied factory overhead)

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