Question

Southern Rim Parts estimates its manufacturing overhead to be $396,000 and its direct labor costs to be $990,000 for year 1. The first three jobs that Southern Rim worked on had actual direct labor costs of $58,000 for Job 301, $83,000 for Job 302, and $140,000 for Job 303. For the year, actual manufacturing overhead was $434,000 and total direct labor cost was $841,000. Manufacturing overhead is applied to jobs on the basis of direct labor costs using predetermined rates. Overhead applied in each of the inventory accounts is as follows: Work-in-process inventory $ 33,640 Finished goods inventory 84,100 Cost of goods sold 218,660 Required: Prepare an entry to prorate the under- or overapplied overhead. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Southern Rim Parts

Journal Entry:

Account Title Debit Credit

Work-in-process inventory $9,760

Finished goods inventory 24,400

Cost of goods sold 63,440

Manufacturing overhead $97,600

To record the prorated under-applied overhead cost.

Step-by-step explanation:

a) Data and Calculations:

Estimated manufacturing overhead = $396,000

Estimated direct labor costs = $990,000

Actual manufacturing overhead = $434,000

Actual direct labor costs = $841,000

Predetermined overhead rate = estimated overhead/estimated direct labor costs = $396,000/$990,000 = $0.40 per DL

Applied overhead:

Work-in-process inventory $ 33,640

Finished goods inventory 84,100

Cost of goods sold 218,660

Total overhead applied = $336,400

Underapplied overhead = $97,600 ($434,000 - $336,400)

Prorating the underapplied overhead to:

Work-in-process inventory $33,640/$336,400 * $97,600 = $9,760

Finished goods inventory 84,100/$336,400 * $97,600 = $24,400

Cost of goods sold 218,660/$336,400 * $97,600 = $63,440

Total underapplied overhead = $97,600