Question

1. The predetermined manufacturing overhead rate is $18 per machine hour based on an estimated manufacturing overhead of 180,000 and 10,000 machine hours. For the year the actual overhead was 200,000 and machine hours were 11,000. How much manufacturing overhead was applied during the year?

a. 198,000

b. 200,000

c. none of the above

2. Overapplied manufacturing overhead that is not material is adjusted by which entry?

a. debit manufacturing overhead and credit misc exp

b. debit cash and credit manufacturing overhead

c. debit manufacturing overhead and credit cost of goods sole

Answer 1

(1)Manufacturing overhead applied would be $198,000

Manufacturing overhead applied based on machine hours is computed as:

Overhead applied = Pre-determined overhead rate * Actual Activity level(Actual machine hours)

Based on the $11,000 machine hours actually worked during the year,the company would have applied $198,000 in overhead cost to production : $18 per machine hour * 11,000machine hours .

(2)The manufacturing overhead applied and the actual manufacturing costs incurred during the period will usually differ.The difference between overhead applied and actual overhead incurred is either underapplied or overapplied overhead.If the amount applied exceeds the actual costs incurred ,the manufacturing overhead account will have a credit balance .This credit is described as overapplied manufacturing overhead.The entry to adjust overapplied manufacturing overhead would be as follows:

Manufacturing Overhead(Debit)

Cost of Goods Sold(Credit)

Note:Since the manufacturing overhead account has a debit balance,manufacturing overhead is debited to close out the account.