Question

Clemmens Company applies overhead based on direct labor cost. Estimated overhead and direct labor costs for the year were $111,500 and $126,000, respectively. During the year, actual overhead was $108,400 and actual direct labor cost was $124,000. The entry to close the over- or underapplied overhead at year-end, assuming an immaterial amount, would include

Answer 1

Credit to cost of goods sold for $5,680

Step-by-step explanation:

Overhead rate = Estimated overheads/estimated labor cost.

= $115,500/$126,000

= 0.9166

= 92%

Overhead applied = Actual direct labor cost × overhead rate

= $124,000 × 92%

= $114,080

Over applied overhead = $114,080 - $108,400

= $5,680

The closing entry would therefore be to debit factory overhead and credit cost of goods sold