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Calculating the Predetermined Overhead Rate, Applying Overhead to Production, Reconciling Overhead at the End of the...

Calculating the Predetermined Overhead Rate, Applying Overhead to Production, Reconciling Overhead at the End of the Year, Adjusting Cost of Goods Sold for Under- and Overapplied Overhead

At the beginning of the year, Horvath Company estimated the following:

Overhead	$240,000
Direct labor hours	80,000

Horvath uses normal costing and applies overhead on the basis of direct labor hours. For the month of January, direct labor hours were 8,450. By the end of the year, Horvath showed the following actual amounts:

Overhead	$246,000
Direct labor hours	79,600

Assume that unadjusted Cost of Goods Sold for Horvath was $336,000.

Required:

1. Calculate the predetermined overhead rate for Horvath. Round your answers to the nearest cent, if rounding is required.

2. Calculate the overhead applied to production in January. (Note: Round to the nearest dollar, if rounding is required.)

3. Calculate the total applied overhead for the year.

4. Calculate adjusted Cost of Goods Sold after adjusting for the overhead variance.

Solutions

Expert Solution

1. The predetermined overhead rate = Estimated Overhead / Estimated Direct Labor Hours

= $ 240,000 / 80,000 direct labor hours

= $3 per direct labor hour

Hence the correct answer is $3 per direct labor hour

2. overhead applied to production in January = predetermined overhead rate * direct labor hours for January

= $ 3 per direct labor hour * 8,450 direct labor hours

= $ 25,350

Hence the correct answer is $ 25,350

Total Applied Overhead = predetermined overhead rate * direct labor hours for the year

= $ 3 *79,600 Direct Labor Hours

= $ 238,800

Hence the correct answer is $ 238,800

Actual Overhead = $ 246,000

Total Applied Overhead = $ 238,800

Since the Actual Overhead is more than the Total Applied Overhead , hence overhead is underapplied.

Hence, Underapplied Overhead = $ 246,000 - $ 238,800

= $ 7,200

Unadjusted Cost of Goods Sold = $ 336,000

Hence the adjusted Cost of Goods Sold = Unadjusted Cost of Goods Sold + Underapplied Overhead

= $ 336,000 + $ 7,200

= $ 343,200

Hence the correct answer is $ 343,200

ekkarill92 answered 1 year ago

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