Question

Clemmens Company applies overhead based on direct labor cost. Estimated overhead and direct labor costs for the year were $118,500 and $125,600, respectively. During the year, actual overhead was $108,000 and actual direct labor cost was $115,800. The entry to close the over- or underapplied overhead at year-end, assuming an immaterial amount, would include

Answer 1

Step-by-step explanation:

For passing the journal entry, first, we have to compute the predetermined overhead rate to know that whether the overhead is under applied or over applied.

Predetermine overhead rate = Estimated overhead cost ÷ direct labor cost

= $118,500 ÷ $125,600

=0.94

Now, we can compute the under applied or over applied overhead which is shown below:

= Actual direct labor cost × Pre determined overhead rate - actual overhead

= $115,800 × 0.94 - $108,000

= $108,852 - $108,000

= $852

Since the amount is in positive, so it is over applied overhead and the journal entry is given below:

Manufacturing overhead A/c Dr $852

To Cost of goods sold $852

(Being over applied overhead closed)