Question

Actual expenses accumulated in the manufacturing overhead account during the period are $950,000. At the beginning of the period, the estimated expense was planned at $930,000 and the number of direct labour hours were estimated at 10,000.

During the year, the actual amount of direct labour hours worked was 10,500.

Required:

1) Is the manufacturing overhead account over or under-applied, and by what amount?

2) Write a simple journal entry to correct it at year-end.

3) If the MOH contained in the cost of goods sold during the year was $800,000, the amount contained in the WIP Inventory is 40,000, and the amount in the ending finished goods inventory is 35,000, complete the journal entry from part 2 with greater precision

Answer 1

1.

Predetermined overhead rate
Estimated Manufacturing overhead	930000
/Estimated Machine hours	10000
Predetermined overhead rate	93.00

Underapplied or overapplied overhead
Applied overhead (10500*$93)	$9,76,500
Actual Overhead cost	$9,50,000
Over applied Overhead	$26,500

Manufacturing overhead account is over-applied, and by $26,500

2.

Account Title	Debit	Credit
Manufacturing Overhead	$26,500
Cost of goods sold		$26,500

3.

Proportion of variance	Overhead	Proportion
Work in Process Inventory	40000	4.57%
Finished Goods Inventory	35000	4.00%
Cost of Goods sold	800000	91.43%
Total	875000

Account Title	Debit	Credit
Manufacturing Overhead	$26,500
Work in Process Inventory (26500*4.57%)		$1,211
Finished Goods Inventory (26500*4%)		$1,060
Cost of Goods Sold (26500*91.43%)		$24,229