Proration of overapplied or underapplied overhead: manufacturer Luxury Goods Pty Ltd allocates manufacturing overhead to work in process on the basis of machine hours. On 1 January of the current year, there were no balances in work in process or finished goods inventories. The following estimates were included in the budget for the current year:

Total estimated manufacturing overhead……………………..$300,000

Total estimated machine hours…………………………………..40,000

During January, the Firm worked on the following production jobs:

B81:………………………1600 machine hours

J76: ………………………2400 machine hours

M49: ……………………..1000 machine hours

During January, job numbers Bei and J76 were completed, and job number B8i was sold. The actual manufacturing overhead incurred during January was $30 000.

Required:

1. Calculate the company’s predetermined overhead rate for the year.

2. How much manufacturing overhead was applied to production during January?

3. Calculate the overapplied or underapplied overhead for January.

4. Prepare a journal entry to close the balance calculated in requirement 3 to cost of goods sold.

5. Prepare a journal entry to prorate the balance calculated in requirement 3 between the work in process inventory, finished goods inventory and cost of goods sold accounts.



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