Question

Calculating the Predetermined Overhead Rate, Applying Overhead to Production, Reconciling Overhead at the End of the Year, Adjusting Cost of Goods Sold for Under- and Overapplied Overhead At the beginning of the year, Han Company estimated the following: Overhead $582,400 Direct labor hours 80,000 Han uses normal costing and applies overhead on the basis of direct labor hours. For the month of January, direct labor hours were 6,950. By the end of the year, Han showed the following actual amounts: Overhead $613,320 Direct labor hours 84,100 Assume that unadjusted Cost of Goods Sold for Han was $927,000.

Required:
1. Calculate the predetermined overhead rate for Han. Round your answer to the nearest cent. $ per direct labor hour
2. Calculate the overhead applied to production in January. (Note: Round to the nearest dollar.) $
3. Calculate the total applied overhead for the year. $ Was overhead over- or underapplied? By how much? overhead $
4. Calculate adjusted Cost of Goods Sold after adjusting for the overhead variance.

Answer 1

Instructions are below.

Step-by-step explanation:

First, we need to calculate the predetermined overhead rate:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Predetermined manufacturing overhead rate= 582,400/80,000

Predetermined manufacturing overhead rate= $7.28 per direct labor hour

Now, we can allocate overhead based on actual hours:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

January:

Allocated MOH= 7.28*6,950= $50,596

Year:

Allocated MOH= 7.28*84,100= $612,248

Now, we can determine the under/over allocation:

Under/over applied overhead= real overhead - allocated overhead

Under/over applied overhead= 613,320 - 612,248

Under/over applied overhead= $1,072 underallocated

If overhead is underallocated, the cost of goods sold should increase:

Adjusted COGS= 927,000 + 1,072= $928,072