Question

PB10.

LO 4.6The actual overhead for a company is $73,175. Overhead was based on 4,500 machine hours and was $3,325 overapplied for the year.

What is the overhead application rate per direct labor hour?
What is the journal entry to dispose of the underapplied overhead?

Answer 1

Applied overhead is calculated by dividing budgeted overhead with budgeted base. Budgeted base that is machine hour is given in the question. Budgeted overhead can be calculated in following way.

BOH = 73,175 + 3.325 = 76,500

Overhead rate per hour = 76,500/4,500 = 17 dollars

The journal entry to dispose of the underapplied overhead is given below.

Debit Cost of Good Sold XXXX

Credit Factory overhead account XXXX