Question

Bibby Auto Shop uses a normal job-costing system to allocate overhead on the basis of labour hours. For the current year, Bibby estimated that the total overhead costs would be $72,000 and that the total labour hours would be 2,400. At the end of the year, Bibby obtained the actual overhead costs from the ledger and found that the shop had incurred $65,800 and had worked 2,350 labour hours.

1. Compute the redetermined (budgeted) overhead rate.
Overhead Rate:__________.
2. Compute the overhead amount that was applied for the year.Was overhead under applies or over applied?
3. Prepare the journal entry to close the overhead account. Assume that the underapplied and overapplied overhead was not material.

Answer 1

Answer:

1.) Overhead Absorption rate= $30 per hour

2) Absorbed overhead= $70,500

Over-absorbed overhead=$4700

3) Journal entry:

Debit Manufacturing overhead expense $4,700

Credit Cost of goods sold $4,700

Step-by-step explanation:

Overhead Absorption rate = Budgeted overhead /Budgeted labour hours

= 72,000 /2,400 hours = $30 per hour

Absorbed overhead = OAR × Actual labour hours

=$30 × 2350 = $70,500

Over-absorbed overhead = Absorbed overhead - Actual overhead

= $70,500 - $65,800 = $4700

Journal entry:

Debit Manufacturing overhead expense $4,700

Credit Cost of goods sold $4,700

Answer:

Overhead Absorption rate= $30 per hour

Absorbed overhead= $70,500

Over-absorbed overhead=$4700

Journal entry:

Debit Manufacturing overhead expense $4,700

Credit Cost of goods sold $4,700