Hi! I am taking a managerial accounting class this semester. the instruction for the journal entry...

Hi!

I am taking a managerial accounting class this semester. the instruction for the journal entry follow: "Record the entry for Overhead costs applied to Work in Process Inventory."

I am not sure how to calculate the numbers for this post?

Expert Solution

There will be a pre-determined overhead rate for applying OH to WIP. The base for working this rate can be Direct Labor hours or Direct labor cost or Machine hours or some other relevant base.

Now, the OH pre-determined rate is calculated as

Estimated overhead expenses/Estimated base

For instance, if the estimated OH expenses for the next period is $10000 and the base activity level, let us say is 1000 direct labor hours. Then the predetermined OH assignment rate based on DLH, is 10000/1000 = $10 per DLH.

Next is the application of OH to the WIP.

Now let us suppose that the actual direct labor hours for the period is 900, then the OH applied to WIP = 900*$10 = $9,000.

The journal entry for this application of OH is:

Debit: WIP Inventory $9000

Credit: Factory overhead $9000

The actual overhead spent could be different from $10000. If it is $9500, then the OH is underapplied to the extent of $500 [Actual overhead of $9500-Overhead applied of $9000].

ekkarill92 answered 1 year ago

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