Question

PA11.

LO 4.6When setting its predetermined overhead application rate, Tasty Box Meals estimated its overhead would be $100,000 and would require 25,000 machine hours in the next year. At the end of the year, it found that actual overhead was $102,000 and required 26,000 machine hours.

Determine the predetermined overhead rate.
What is the overhead applied during the year?
Prepare the journal entry to eliminate the underapplied or overapplied overhead.

Answer 1

(a) $4 per machine hour

(b) $104,000

Step-by-step explanation:

(a) Predetermined overhead rate:

= Estimated overhead ÷ Machine hours

= $100,000 ÷ 25,000

= $4 per machine hour

(b) Overhead applied during the year:

= $4 per machine hour × 26,000

= $104,000

(c) Overapplied overhead,

since overhead applied is greater than the actual overhead by [$104,000 - $102,000] $2,000.

The journal is as follows:

Manufacturing overhead A/c Dr. $2,000

To Cost of goods sold A/c $2,000

(Being the Overapplied overhead is recorded)