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Ikerd Company applies manufacturing overhead to jobs on the basis of machine hours used. Overhead costs are estimated to total $300,000 for the year, and machine usage is estimated at 125,000 hours.
For the year, $322,000 of overhead costs are incurred and 130,000 hours are used.
Required:
A) Compute the manufacturing overhead rate for the year.B) What is the amount of under- or overapplied overhead at December 31st?C) Prepare the adjusting entry to assign the under- or overapplied overhead for the year to cost of goods sold.

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Answer:

A. $2.40 per Machine hour

B. Underapplied = $10,000

C. cost of goods sold (debit) $10,000 , overheads (credit) $10,000

Explanation:

A) Compute the manufacturing overhead rate for the year

Overhead Rate = Total  Fixed Overheads / Budgeted Activity

                         =   $300,000 / 125,000 Machine hours

                         =   $2.40 per Machine hour.

B) What is the amount of under- or over applied overhead at December 31st?

Under Applied Overheads = Actual Overheads > Applied Overheads

Over Applied Overheads = Actual Overheads < Applied Overheads

Actual Overheads = $322,000

Applied Overheads = $2.40 × 130,000 hours = $ 312,000

Underapplied = $10,000

C) Prepare the adjusting entry to assign the under- or overapplied overhead for the year to cost of goods sold.

cost of goods sold (debit) $10,000

overheads (credit) $10,000

Answer:

A. The manufacturing overhead rate for the year is $2.40

B. The amount of under- or overapplied overhead at December 31st is $10,000

C. The adjusting entry to assign the under- or overapplied overhead for the year to cost of goods sold would be as follows:

                                   Debit        Credit

cost of goods sold    $10,000

Manufacturing overhead               10,000

Explanation:

A. To calculate the manufacturing overhead rate for the year we would have to use the following formula:

manufacturing overhead rate=Estimated overhead cost/Estimated machine hours usage

manufacturing overhead rate=$300,000/125,000

manufacturing overhead rate=$2.40

B. To Calculate the amount of under applied or over applied overhead cost we would have to use the following formula:

manufacturing overhead cost applied=Total machine hours used*manufacturing overhead rate

manufacturing overhead cost applied=130,000*$2.40

manufacturing overhead cost applied=$312,000

under- or overapplied overhead cost=Actual manufactured overhead costs-Manufacturing overhead cost applied

under- or overapplied overhead cost= $322,000-$312,000

under- or overapplied overhead cost= $10,000

C. The adjusting entry to assign the under- or overapplied overhead for the year to cost of goods sold would be as follows:

                                   Debit        Credit

cost of goods sold    $10,000

Manufacturing overhead               10,000

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