Question

Martin Corp. applies overhead based on machine hours. Budgeted factory overhead is $275,000 and budgeted machine hours were 19,000. Actual factory overhead was $270,000 and actual machine hours were 19,100. Before disposition of under/overapplied overhead, cost of goods sold was $500,000 and ending inventories were as follows:

Direct materials50,000

WIP200,000

Finished Goods300,000

Total550,000

Determine the budgeted factory overhead rate per machine hour

Compute the over/underapplied overhead

Prepare the journal entry to dispose of the variance using the write-off to cost of goods sold approach

Prepare the journal entry to dispose of the variance using the proration approach.

Answer 1

1

Determine the budgeted factory overhead rate per machine hour

budgeted factory overhead rate per machine hour

= budgeted factory overhead/ Machine Hour

=275,000/19000

=$14.47 per machine Hour

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2

Compute the over/underapplied overhead

Applied OH

=$14.47*19100 machine hour

over/under applied overhead

=Applied -Actual

=14.47*19100-270,000

=276377-270,000

=6377 Over applied

____________________________________________

3

Prepare the journal entry to dispose of the variance using the write-off to cost of goods sold approach

Journal	Debit $	Credit $
Factory department Overhead control	6377
Cost of goods sold		6377

__________________________________________________

4Prepare the journal entry to dispose of the variance using the proration approach.

                500,000+200,000+300,000

=1,000,000

Cost of goods sold

=500,000/1,000,000=50%x6377=$3189

WIP

=200,000/1,000,000=20%x6377=$1275

Finished goods

=300,000/1,000,000=30%x6377=$1913

Journal	Debit $	Credit $
Factory department Overhead control	6377
Cost of goods sold		3189
WIP inventory		1275
Finished Goods inventory		1913