Premium Company produces uniforms. The company allocates manufacturing overhead based on the machine hours each job uses. Premium Company reports the following cost data for the past year:
Budget Actual
Direct labor hours 7,100 hours 6,500 hours
Machine hours 6,800 hours 6,800 hours
Depreciation on sales staff automobiles $23,500 $23,500
Indirect materials $52,000 $54,500
Depreciation on trucks used to deliver uniforms to customers $13,500 $11,000
Depreciation on plant and equipment $64,000 $65,500
Indirect manufacturing labor $39,500 $41,500
Customer service hotline $21,500 $23,000
Plant utilities $900 $1,900
Direct labor cost $71,000 $85,000
-Requirements:
1. Compute the predetermined manufacturing overhead rate.
2. Calculate the allocated manufacturing overhead for the past year.
3. Compute the underallocated or overallocated manufacturing overhead.
4. Prepare the journal entry to close the allocated manufacturing overhead.

Estimated yearly overhead cost = Budgeted manufacturing overheads - Plant utilities + Indirect materials + Plant depreciation + Indirect labor MFR costs

= $71,000 + $900 + $52,000 + $39,500

= $163,400

Estimated yearly machine hour = 6,800

= $163,400/6,800

= $24.03 per machine hour

2. The allocated manufacturing overhead for the past year

= Actual machine hours × Predetermined machine hours

= 6,800 × $24.03

= $163,404

3. Manufacturing overhead

Actual manufacturing overhead = Actual indirect materials + Actual indirect manufacturing labor + Actual depreciation on plant and equipment + Actual plant utilities

= $54,500 + $41,500 + $65,500 + $1,900

= $163,400

Over applied overhead = Actual manufacturing overhead - Applied manufacturing overhead

= $163,400 - $163,404

Over applied overhead = $4

4. Journal entry

Cost of goods sold Dr $4

...................To Over applied manufacturing overhead Cr $4

(Being over applied overhead to cost of goods sold)