Question

Calculate and Use Overhead Rate

Selected data for the consulting department of Austin Consulting, Inc., follow:

Estimated consulting overhead cost for the year	$405,000
Estimated direct labor cost for the year (@ $9/hr.)	450,000
Actual manufacturing overhead cost for January	24,000
Actual direct labor cost for January (1,200 hours)	16,500

Assuming that direct labor cost is the basis for applying consulting overhead,

a. Calculate the predetermined overhead rate.

Answer%

b. Prepare a journal entry that applies consulting overhead for January.

General Journal
Description	Debit	Credit
AnswerConsulting overheadCost of goods soldFinished goods inventoryWork in process inventory	Answer	Answer
AnswerConsulting overheadCost of goods soldFinished goods inventoryWork in process inventory	Answer	Answer

c. By what amount is consulting overhead over- or underapplied in January?

Consulting overhead was Answerover-appliedunder-applied by $Answer in

Answer 1

a. pre determined overhead rate = Total cost/ cost driver

Here cost driver = $450,000 labor cost

Pre determined OH rate = $405,000/450,000

=90%

b.The OH is applied on the basis of direct labor cost

so work in process inventory will be debited and consulting OH will be credited by 90% of direct labor cost

=$16,500*90%

=$14,850

	General journal	Debit	Credit
	Work in process inventory	$14,850
	Consulting Overhead		$14,850

c.when tha actual Overhead>applied overhead , then overheads are underapplied

Actual overhead< applied overhead, then overhead are overapplied

Over(Under)applied OH =overhead applied- Actual overhead

=$14,850-$24,000

=$9,150 underapplied

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