Problem 3‐53 Manufacturing overhead is applied based on machine hours January 1: Zero balances in work in process and finished goods inventory Total budgeted manufacturing overhead $235,000 Total budgeted machine hours 47,000 Job # A79: 1,000 machine hours Job # N08: 2,500 machine hours Job # P82: 500 machine hours Total 4,000 machine hours Job #’s A79 and N08 were completed in January; job # A79 was sold p y; j Actual manufacturing overhead in January = $26,000 Part 1: Compute the predetermined overhead rate Budgeted Manufacturing Overhead ÷ Budgeted machine hours $235,000 ÷ 47,000 = $5/machine hour ©Dr. Chula King All Rights Reserved Problem 3‐53 (continued) Part 2: How much overhead was applied to production during January? Actual machine hours x predetermined overhead rate 4,000 machine hours x $5/machine hour = $20,000 Part 3: Calculate the overapplied or underapplied overhead for January Applied manufacturing overhead $20,000 (CR) Actual manufacturing overhead 26,000 (DR) Underapplied manufacturing overhead $ 6,000 (DR) Part 4: Prepare journal entry to close underapplied manufacturing overhead to Cost of Goods Sold Underapplied pp manufacturing overhead would have a debit balance. The g entry to close this to Cost of Goods Sold would be Cost of Goods Sold 6,000 Manufacturing overhead 6,000 ©Dr. Chula King All Rights Reserved Problem 3‐53 Part 5: Prepare the journal entry to prorate the underapplied manufacturing overhead among work in process, finished goods and cost of goods sold accounts First Step: Determine the percentage of applied manufacturing overhead in each inventory category to the total: P Percentage t A Account t J b# Job # A Amount t Work in process P82 $ 2,500 (500x$5) 2,500÷20,000 = 12.5% Finished goods N08 12,500 (2,500x$5) 12,500÷20,000 = 62.5% Cost of goods sold A79 5,000 (1,000x$5) 5,000 ÷20,000 = 25.0% Total $20,000 100.0% Second Step: Based on the percentages, allocate the underapplied overhead to the three inventory accounts A Account t U d Underapplied li d OHx Percentage = Amount allocated OH P t A t ll t d Work in process 6,000 x 12.5% = $ 750 Finished goods 6,000 x 62.5% = 3,750 Cost of goods sold 6,000 x 25.0% = 1,500 Total $ 6,000 ©Dr. Chula King All Rights Reserved Problem 3‐53 (continued) Journal entry: Work in process inventory Finished goods inventory Cost of goods sold Manufacturing overhead ©Dr. Chula King All Rights Reserved 750 3,750 1,500 6,000