Question

Calculate the overapplied or underapplied overhead for the year and Prepare a journal entry to close out the Manufacturing Overhead account into Cost of Goods SoldThe following information pertains to Paramus Metal Works for the year just ended. Budgeted direct-labor cost: 75,000 hours (practical capacity) at $16 per hour Actual direct-labor cost: 80,000 hours at $17.50 per hour Budgeted manufacturing overhead: $997,500 Budgeted selling and administrative expenses: $435,000 Actual manufacturing overhead: Depreciation $ 233,000 Property taxes 22,000 Indirect labor 82,000 Supervisory salaries 201,000 Utilities 57,000 Insurance 32,000 Rental of space 302,000 Indirect material (see data below) 79,000 Indirect material: Beginning inventory, January 1 47,000 Purchases during the year 95,000 Ending inventory, December 31 63,000 calculated the cost driver is 13.30 , can someone help me with the following-1. Calculate the overapplied or underapplied overhead for the yea2.Prepare a journal entry to close out the Manufacturing Overhead account into Cost of Goods Sold

Answer 1

1)

applied overhead = Actual Manufacturing Overhead - Applied Manufacturing Overhead

Applied Overhead = $1,008,000 - ($13.3 x 80,000)

= $1,008,000 - $1,064,000

= -$56,000 (Over applied)

2) The manufacturing overhead is debited and the cost of goods sold is credited with $56,000.

S.No Account Titles and Explanation Debit Credit

Manufacturing Overhead $56,000

Cost of goods sold $56,000

(Being manufacturing overhead account closed out)

Step-by-step explanation:

1) Calculate the overapplied or underapplied overhead for the year

The applied overhead is calculated by deducting the actual manufacturing overhead by the applied manufacturing overhead. The actual manufacturing overhead is calculated by adding the depreciation, property taxes, indirect labor, supervisor salaries, utilities, insurance, and rental of space. The indirect material is calculated by adding the beginning inventory with the purchases and deducting by the ending inventory. Thus, the indirect materials used are $79,000. It should be added with other overheads. Therefore, the actual manufacturing overhead is $1,008,000. The applied manufacturing overhead is calculated by multiplying the predetermined overhead rate with the direct labor hours. It is calculated by multiplying $13.3 with 80,000. It is $1,064,000. The applied overhead is higher than the actual manufacturing overhead. Therefore, the overhead is over-applied. It is $56,000.

2) Prepare a journal entry to close out the Manufacturing Overhead account into Cost of Goods Sold

It is calculated that the over-applied overhead is $56,000. It should be recorded. It is recorded by debiting the manufacturing overhead and crediting the cost of goods sold. As the overhead is an expense, it should be debited. The cost of goods sold is credited with $56,000.