Question

The Cavy Company estimates that the factory overhead for the following year will be $644,000. The company has decided that the basis for applying factory overhead should be machine hours, which is estimated to be 16,100 hours. The machine hours for the month of April for all of the jobs were 1,620. If the actual factory overhead for April totaled $65,837,

a. determine the over- or underapplied amount for the month.
b. determine the total factory overhead amount applied.
c. prepare the journal entry to close factory overhead into Cost of Goods Sold.

Answer 1

A. $1,037 underapplied

B. Total factory overhead 64,800

C.Dr Factory overhead $1,037

Cr Cost of Goods Sold $1,037

Step-by-step explanation:

a. Calculation to determine the over- or underapplied amount for the month.

First step to find the Predetermined Overhead rate using this formula

Predetermined Overhead rate = Predetermined Overhead / Machine Hours

Predetermined Overhead rate=$644,000/16,100

Predetermined Overhead rate= $ 40 per hour

Second step is to find the Overhead Applied using this formula

Overhead Applied = Predetermined Overhead rate * machine hours for April

Overhead Applied=1,620 hours ×$ 40 per hour

Overhead Applied=64,800

Last step is to calculate for Over- or underapplied amount

Over- or underapplied amount =$65,837-64,800

Over- or underapplied amount=$1,037 underapplied

b. Calculation to determine the total factory overhead amount applied.

First step to find the Predetermined Overhead rate using this formula

Predetermined Overhead rate = Predetermined Overhead / Machine Hours

Predetermined Overhead rate=$644,000/16,100

Predetermined Overhead rate= $ 40 per hour

Now let calculate for the total factory overhead

Total factory overhead=1,620 hours ×$ 40 per hour

Total factory overhead=64,800

c. preparation of the journal entry to close factory overhead into Cost of Goods Sold.

Dr Factory overhead $1,037

Cr Cost of Goods Sold $1,037