Question

Winston Company estimates that the factory overhead for the following year will be $1,316,700. The company has decided that the basis for applying factory overhead should be machine hours, which is estimated to be 39,900 hours. The total machine hours for the year were 54,400 hours. The actual factory overhead for the year was $1,820,000. Enter the amount as a positive number.

a. Determine the total factory overhead amount applied.
$

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

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

Answer 1

Solution :

A) Computation of factory overhead applied:

Estimated overhead = $ 13,16,700

Estimated machine hours = 39,900 hours

Actual machine hours         = 54,400 hours

Computation of predetermined overhead rate per hour = (estimated factory overhead / estimated machine hours )

                                                                                                     = $ 13,16,700 / 39,900 hrs

                                                                                                     = $ 33 per machine hour

Total factory overheads applied = Actual machine hours * predetermined overhead rate per hour

                                                                = 54,400 hours * $ 33.00

                                                                = $ 17,95,200

B) Computation of underapplied overhead for the year

Total factory overheads applied = $ 17,95,200

Actual factory overheads            = $ 18,20,000

Underapplied overhead              = $ 18,20,000 - $ 17,95,200 ( Actual overhead - Applied overhead)

                                                    = $ 24,800

C) Journal entry to close factory overhead into cost of goods sold:

Date	General journal	Debit in $	Credit in $
-	Cost of goods sold account	$ 24,800
	To Factory overhead account (To transfer underapplied overhead to cost of goods sold account)		$ 24,800

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