Question

A manufacturing company applies factory overhead based on direct labor hours. At the beginning of the year, it estimated that factory overhead costs would be $360,000 and direct labor hours would be 30,000. Actual manufacturing overhead costs incurred were $377,200, and actual direct labor hours were 36,000. The entry to apply the factory overhead costs for the year would include a:

a. debit to factory overhead for $360,000.

b. credit to factory overhead for $432,000.

c. debit to factory overhead for $377,200.

d. credit to factory overhead for $360,000.

Answer 1

Answer:

b. credit to factory overhead for $432,000.

Explanation:

Before recording the factory overhead costs  we need to do the calculations which are shown below:

For computing the ended overhead amount, first, we have to compute the predetermined overhead rate. The formula is shown below:

Predetermined overhead rate = (Total estimated factory overhead) ÷ (estimated direct labor-hours)

= $360,000 ÷ 30,000 hours

= $12

Now we have to find the actual overhead which equal to

= Actual direct labor-hours × predetermined overhead rate

= 36,000 hours × $12

= $432,000

So, the ending overhead equals to

= Actual manufacturing overhead - actual overhead

= $377,200- $432,000

= $54,800 under-applied