Question

Winston Company estimates that the factory overhead for the following year will be $831,000. The company has decided that the basis for applying factory overhead should be machine hours, which is estimated to be 27,700 hours. The total machine hours for the year were 55,000 hours. The actual factory overhead for the year was $1,673,000. Enter the amount as a positive number.

a. Determine the total factory overhead amount applied. Round to the nearest dollar.
$

b. Compute the over- or underapplied amount for the year.
$  

c.   Journalize the entry to transfer the over- or underapplied factory overhead to cost of goods sold. If an amount box does not require an entry, leave it blank.

  

Answer 1

a. Total factory overhead amount applied = $1650000

Solution:

Total factory overhead amount applied = Predetermined overhead rate*Actual machine hours

Where,

Predetermined overhead rate = Budgeted Factory Overhead/Budgeted Machine hours

Predetermined overhead rate = $831000/27700 hours

Predetermined overhead rate = $30 per machine hour

Therefore,

Total factory overhead amount applied = $30*55000

b. Under applied overhead amount.

Solution:

Over- or (Under applied) overhead amount = Applied Overhead amount - Actual Overhead amount

Over- or (Under applied) overhead amount = $1650000 - $1673000

Over- or (Under applied) overhead amount = ($23000)

This is under applied overhead amount.

c.

Journal entry for Under applied overhead

Date	Accounts and Explanation	Debit	Credit
	Cost of goods sold	$23000
	Factory Overhead		$23000
	(To allocate the under applied factory overhead cost to cost of goods sold)