Question

ABC had an estimated factory overhead of $600,000 and an estimated direct labor hours of 100,000. The company applies factory overhead, using direct labor hours as the cost driver.

During the period, the company incurred $60,000 direct labor cost at a rate of $5 per hour.

The actual factory overhead incurred is $80,000.

Required:

1. What is the predetermined overhead rate?

2. What is the over- or under-applied factory overhead.

3. Assuming that $50,000, $100,000, and $200,000 were balances found in Cost of Goods sold, Work-in-process, and finished goods, respectively, make necessary entries for the disposal of material under- or over-applied overhead.

Answer 1

1
	Estimated manufacturing Overhead	$600,000
	Estimated direct labor hours	100,000
	Predetermined overhead rate ($600,000/100,000)	$6.00
2	Overhead applied =	Predetermined overhead rate × actual direct hours
		$6.00 x ($60,000/$5)
		$72,000
	Underapplied	$8,000
	($80,000 - $72,000)
3
	Cost of Goods sold (8,000 x 50000/350,000	$1,143
	Work-in-process (8,000 x 100,000/350,000)	$2,286
	Finished goods (8,000 x 200,000/350,000)	$4,571
	Factory Overhead		$8,000