Question

1.       Skywalker Corporation produces hand-made custom lightsabers for the most die-hard Star Wars fans. Each fan has their own individual lightsaber that they special order to fit their needs. Skywalker Corp. applies factory overhead based off direct labor hours for the year. Below is information pertaining to estimated and actual direct material, direct labor, and overhead costs as well as direct labor hours.

                 

                                                            Estimated                          Actual

                  Direct Materials                      $24,350                        $26,900           
                  Direct Labor                           30,500                        32,005

                  Factory supervisor salary       27,600                        29,000

                  Indirect materials                   10,300                        11,000

                  Factory utilities                       1,200                         1,500

                  Other indirect Costs                   275                              350

                  Direct Labor Hours                4,500                         5,000

a. Calculate the predetermined overhead rate

b. Provide the journal entry to record the applied overhead.

c. Provide the journal entry to close out the overhead account.

Answer 1

Solution a:

Estimated overhead = Factory Supervisor salary + Indirect Material + Factory utilities + Other indirect costs

= $27,600 + $10,300 + $1,200 + $275 = $39,375

Estimated direct labor hours = 4500

Predetermined overhead rate = $39,375 / 4500 = $8.75 per hour

Solution b:

Actual direct labor hours = 5000

Applied overhead = 5000*$8.75 = $43,750

Adjusting Journal Entries - Skywalker Corporation
Particulars	Debit	Credit
Work In Process Dr	$43,750.00
To Manufacturing Overhead		$43,750.00
(Being overhead applied to production)

Solution c:

Actual overhead incurred = $29,000 + $11,000 + $1,500 + $350 = $41,850

Overapplied overhead = $43,750 - $41,850 = $1,900

Adjusting Journal Entries - Skywalker Corporation
Particulars	Debit	Credit
Manufacturing Overhead Dr	$1,900.00
To Cost of goods sold		$1,900.00
(Being overapplied overhead closed to cost of goods sold)