Question

Ikerd Company applies manufacturing overhead to jobs on the basis of machine hours used. Overhead costs are estimated to total $327,080 for the year, and machine usage is estimated at 125,800 hours. For the year, $349,600 of overhead costs are incurred and 130,500 hours are used.

1. Compute the manufacturing overhead rate for the year.
2. What is the amount of under- or overapplied overhead at December 31?
3. Prepare the adjusting entry to assign the under- or overapplied overhead for the year to cost of goods sold.

Answer 1

Answer and Explanation:

The computation is shown below:

a. For the manufacturing overhead rate for the year

As we know that

Manufacturing overhead rate = Estimated overhead cost ÷ machine usage

= $327,080 ÷ 125,800 hours

= $2.60 per hour

b. Now the amount of under- or over applied overhead is

= Applied overhead - actual overhead

where,

Applied overhead is

= 130,500 hours × $2.60

= $339,300

And, the actual overhead is $349,600

So, the under overhead applied is $10,300

3. And, the journal entry is

Cost of goods sold $10,300

To Manufacturing overhead $10,300

(Being the under applied overhead is recorded)