Question

Hartley uniforms produces uniforms.

produces uniforms. The company allocates manufacturing overhead based on the machine hours each job uses.

Hartley UniformsHartley Uniforms

reports the following cost data for the past​ year:

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​(Click the icon to view the cost​ data.)Read the requirements

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.

Requirement 1. Compute the predetermined manufacturing overhead rate.

Enter the formula for predetermined manufacturing overhead​ rate, then compute the rate.

Estimated yearly overhead costs

/

Estimated yearly machine hours

=

Predetermined overhead rate

$194,400

/

7,200

=

$27

per machine hour

Requirement 2. Calculate the allocated manufacturing overhead for the past year.

						Manufacturing
	Actual machine hours	x	Predetermined overhead rate		=	overhead allocated
	6,300	x	$27		=	$170,100

Requirement 3. Compute the underallocated or overallocated manufacturing overhead. How will this underallocated or overallocated manufacturing overhead be disposed​ of?

First calculate the preliminary manufacturing overhead balance using the​ T-account.

Manufacturing Overhead
Actual indirect materials	50,500			Manufacturing overhead allocated	170,100
Actual indirect manufacturing labor	42,000
Actual depreciation on plant and equipment	72,500
Actual plant utilities	38,400
End Bal	33,300

Close the​ under- or overallocated overhead to Cost of Goods Sold by journalizing the entry.​ (Record debits​ first, then credits. Exclude explanations from any journal​ entries.)

Journal Entry
Date		Accounts	Debit	Credit
				DATA TABLE Budget Actual Direct labor hours. . . . . . . . . . . . . . . . . . . . . . . . 7,600 hours 6,100 hours Machine hours. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,200 hours 6,300 hours Depreciation on salespeople's autos. . . . . . . . . . . . $23,000 $23,000 Indirect materials. . . . . . . . . . . . . . . . . . . . . . . . $48,500 $50,500 Depreciation on trucks used to deliver uniforms to customers. . . . . . . . . . . . . . . . . . . . . . . . . . $13,000 $11,000 Depreciation on plant and equipment. . . . . . . . . . $70,000 $72,500 Indirect manufacturing labor. . . . . . . . . . . . . . . . . $40,000 $42,000 Customer service hotline. . . . . . . . . . . . . . . . . . . . . . $19,000 $21,000 Plant utilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $35,900 $38,400 Direct labor cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $72,500 $85,500

Answer 1

Solution:

Requirement 1. Compute the predetermined manufacturing overhead rate --- It is calculated correctly in the question. However I can provide you the explanation if needed, please let me know.

Requirement 2. Calculate the allocated manufacturing overhead for the past year --- This part is also done correctly. However I can provide you the explanation if needed, please let me know.

Requirement 3

Calculation of under or over allocated manufacturing overhead

Manufacturing Overhead expenses are usually applied to production on the basis of pre-determined rates.

Over-applied Overheads ----- If Applied Manufacturing Overheads are higher than the actual overheads incurred, the difference is called Over Applied Overhead.

Under-applied Overheads ----- If Applied Manufacturing Overheads are lesser than the actual overheads incurred, the difference is called Under Applied Overhead.

Here in the question,

Applied Manufacturing Overheads (as calculated in Requirement 2) = $170,100

Actual Manufacturing Overheads Incurred (as per T Account) = $50,500 + $42,000 + $72,500 + $38,400 = $203,400

It means Applied Manufacturing Overheads are lesser than Actual overheads. Hence Overheads are under-applied.

Under Applied Overhead = Actual Manufacturing Overheads – Applied Manufacturing Overheads

= $203,400 - $170,100

= $33,300

Disposition of Under Applied Overheads

Generally, Over or Under Applied Overheads are disposed off to Cost of Goods Sold.

General Journal	Debit	Credit
Cost of Goods Sold	$33,300
Under-Applied Manufacturing Overhead     or    Manufacturing Overhead Account		$33,300

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you