A company applies overhead at a rate of 150% of direct labor cost. Actual overhead cost for the current period is $950,000, and direct labor cost is $600,000.

1. Determine whether there is over - or underapplied overhead using the T-account.

2. Prepare the entry to close over-or underapplied overhead to cost of goods sold.

Question

Business

Schmitt

31 December, 23:22

A company applies overhead at a rate of 150% of direct labor cost. Actual overhead cost for the current period is $950,000, and direct labor cost is $600,000.

1. Determine whether there is over - or underapplied overhead using the T-account.

2. Prepare the entry to close over-or underapplied overhead to cost of goods sold.

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Answers (1)

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Jaycee Riley · Answer 1

Actual overhead cost for the current period is $950,000,

Actual direct labor cost is $600,000.

Applied overhead cost = 150 % $600,000 = $ 900,000

Overhead Dr Cr

Actual Applied

$ 950,000 $ 900,000

Bal 50,000

Underapplied Overhead $ 50,000

Journal Entry

This method is used mostly as it easy and short

Cost of Good Sold $ 50,000 Dr.

Manufacturing Overhead $ 50,000 Cr.

But actual entry is

Direct LAbor Cost WIP $ 600,000

Actual Overhead $ 900,000

Cost of goods Sold $ 50,000

Manufacturing Overheads 1550,000