Question

The Kristopher Company uses a job-costing system at its plant. The plant has a Machining Department and an Assembly Department. Its job-costing system has two direct-cost categories (direct materials and direct manufacturing labor) and two manufacturing overhead cost pools (the Machining Department overhead, allocated to jobs based on actual machine-hours, and the Assembly Department overhead, allocated to jobs based on actual direct manufacturing labor cost). The 2019 budget for the plant is: Machining Assembly Manufacturing overhead $1,800,000 $3,600,000 Direct manufacturing labor cost $1,400,000 $2,000,000 Machine-hours 50,000 200,000 At the end of 2019, the actual manufacturing overhead costs were $2,100,000 in Machining and $3,700,000 in Assembly. A total of 55,000 actual machine-hours were used in Machining and total actual direct manufacturing labor costs in Assembly were $2,200,000. Required

a. Determine the predetermined manufacturing overhead rate for each department.
b. Calculate under or over-allocated overhead for each department. c. Assuming that the company uses the write-off to cost of goods sold approach method, prepare the journal entries to write off the under or over-allocated overhead for each department.

Answer 1

a) Machining overhead rate = 1800000/50000 = 36 per MH

Assembly overhead rate = 3600000/2000000 = 180% of labor cost

b) Calculate under and over allocated overhead

	Applied overhead	Actual overhead	Under or over allocated
Machining	36*55000 = 1980000	2100000	120000 Under allocated
Assembly	2200000*1.8 = 3960000	3700000	260000 Over allocated

Journal entry

No	General Journal	Debit	Credit
a	Cost of goods sold	120000
	Manufacturing overhead		120000
	(To adjust under allocated overhead)
b	Manufacturing overhead	260000
	Cost of goods sold		260000
	(To adjusted over allocated overhead)