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Over and Under Applied Overhead

The accounting period has just ended and you are preparing journal entries for the transactions that took place during the month. Make sure to include entries that affect the COGS account.

1. Prepare the proper journal entries in an Excel file, including Notes, and properly update the T-accounts affected by each of the following journal entries.

$50,000 of direct labor was expended.
$100,000 of direct materials were used.
$80,000 was spent on overhead expenses.

Using the predetermined overhead rate, $60,000 of overhead was charged to the period.

2. Was overhead underapplied or overapplied? Explain.
3. If there is anything left in the overhead account, what could be done with those dollars?
4. Based on this period's results, do you think the predetermined overhead rate should be changed for the rest of the year? Why or why not?

Solution Summary

Use of the predetermined manufacturing overhead rate to prepare end of period journal entries using excel file. The journal entries show any over-applied or under-applied manufacturing overhead for the period and indicate what is done with this balance. Based on the period's results we can determine whether the predetermined manufacturing overhead rate should be changed.