Question

Mountain Snow Manufacturing applies factory overhead at a rate of 125% of direct labor. In the month of May, the company used $250,000 of direct materials and $200,000 in direct labor for the period. Mountain Snow Manufacturing incurred actual factory overhead cost of $350,000. Is the Factory Overhead account over or under stated? Record the journal entries necessary for only applying applied overhead for the period and the adjustment of the overhead account for the month of May. (13 points)

                        Circle whether over - or under-applied:          Under applied                   or                       Over Applied

Answer 1

Predetermined overhead rate = 125% of direct labor cost

Actual direct labor cost = $200,000

Applied factory overheads = Actual direct labor cost x Predetermined overhead rate

= 200,000 x 125%

= $250,000

Actual factory overhead = $350,000

Under applied factory overhead = Actual factory overhead - Applied factory overheads

= 350,000 - 250,000

= $100,000

Journal

Account Title and Explanation	Debit	Credit
Cost of goods sold	100,000
Factory overhead		100,000
(To record unapplied factory overhead)

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