The following information pertains to Paramus Metal Works for the year just ended.
Budgeted direct labor cost: 77,000 hours at $17 an hour
Actual direct labor cost: 79,000 hours at $18 an hour
Budgeted manufacturing overhead: $993,300
Actual Manufacturing Overhead:
Property Taxes 19,000
Indirect Labor 79,000
Supervisory salaries 210,000
Rental of space 295,000
Indirect material (see data below) 79,000
1. Compute the firm's predetermined overhead rate, which is based on direct-labor hours.
2. Calculate the overapplied or underapplied overhead for the year.
3. Prepare a journal entry to close out the Manufacturing Overhead account into Cost of Goods Sold.
The predetermined overhead rate = Budgeted overhead/Budgeted labor hours = $993,300/77,000 labor hours = $12.90/labor hour
Applied factory ...
This solution looks at a managerial problem to calculate the overhead rate and to determine if overhead is overapplied or underapplied.