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Computing an Overhead Rate

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Renteria Company applies manufacturing overhead to jobs on the basis of machine hours used. Overhead costs are expected to total $305,000 for the year, and machine usage is estimated at 125,000 hours. For the year, $322,000 of overhead costs is incurred and 130,000 hours are used.

Instructions

(a) Compute the manufacturing overhead rate for the year.

(b) What is the amount of under- or over applied overhead at December 31?

(c) Prepare the adjusting entry to assign the under- or over applied overhead for the year
to cost of goods sold

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Solution Summary

This solution illustrates how to compute the manufacturing overhead rate and determine if it is under or over applied and by how much.

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(a) Compute the manufacturing overhead rate for the year.

Estimated overhead to be incurred $305,000
Estimated number of machine hours 125,000
Manufacturing overhead rate for the year $ 2.44 ($305,000/125,000)

(b) What is the amount of under- or over applied overhead at December 31? ...

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