Manufacturing overhead is applied based on machine hours

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
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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
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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