Question

The Winston Company estimates that the factory overhead for the following year will be $716,400. The company has decided that the basis for applying factory overhead should be machine hours, which is estimated to be 39,800 hours. The total machine hours for the year was 54,400 hours. The actual factory overhead for the year was $993,000.

Required:

	(a) Determine the total factory overhead amount applied.
	(b) Calculate the overapplied or underapplied amount for the year. Enter the amount as positive values.
	(c) Prepare the journal entry to close Factory Overhead into Cost of Goods Sold. Refer to the Chart of Accounts for exact wording of account titles. CHART OF ACCOUNTS Winston Company General Ledger ASSETS 110 Cash 121 Accounts Receivable 131 Materials 133 Work in Process 135 Factory Overhead 137 Finished Goods 141 Supplies 142 Prepaid Expenses 181 Land 190 Factory Equipment 191 Accumulated Depreciation LIABILITIES 210 Accounts Payable 221 Utilities Payable 251 Wages Payable EQUITY 311 Common Stock 340 Retained Earnings 351 Dividends 390 Income Summary REVENUE 410 Sales 610 Interest Revenue (a) Determine the total factory overhead amount applied. Total factory overhead applied $? (b) Calculate the overapplied or underapplied amount for the year. Enter the amount as positive values. Factory overhead (underapplied or overapplied?) by how much $? (c) Prepare the journal entry to close Factory Overhead into Cost of Goods Sold on December 31. Refer to the Chart of Accounts for exact wording of account titles. PAGE 1 JOURNAL DATE DESCRIPTION POST. REF. DEBIT CREDIT 1 2

Answer 1

• Requirement [a]

	Estimated Overhead	$716,400
Divided by	Estimated machine hours	39,800
Equals to	Predetermined Overhead allocation rate	$18
Multiplied by	Actual machine hours	54,400
You get	Total Factory overhead amount applied	$979,200

• Requirement [b]

Total Factory overhead amount applied	$979,200
Total actual factory overhead	$993,000
Applied overhead are	LESS than Actual overheads
Hence	Overheads are UNDER – APPLIED by $ 13,800

• Requirement [c]

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT
1	31-Dec	Cost of Goods Sold [993000 - 979200]		$13,800
2		Factory Overhead			$13,800