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Computing an Overhead Rate

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

Solution Preview

(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? ...

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.

$2.19