tioncompmmapa Problem 222A Predetermined Overhead Rate Dispo

tion.compmm.apa Problem 2-22A Predetermined Overhead Rate; Disposition of Underapplied or Overapplied Overhead [LO2-1, LO2-7 Luzadis Company makes furniture using the latest automated technology. The company uses a job-order costing system and applies manufacturing overhead cost to products on the basis of machine-hours. The following estimates were used in preparing the predetermined overhead rate at the beginning of the year Fixed manufacturing overhead cost Variable manufacturing overhead per computer-hour 75,000 $795,000 1.40 During the year, a glut of furniture on the market resulted in cutting back production and a buildup of fumiture in the company\'s warehouse. The company\'s cost records revealed the following actual cost and operating data for the year 60,000 Manufacturing overhead cost$850,000 Required: 1.Compute the company\'s predetermined overhead rate for the year per hour 2. Compute the underapplied or overapplied overhead for the year.

Solution

Under recovery of overhead = $130000

3)

1) The budgeted overhead recovery rate = $795000/75000 +1.4

Overhead recovery rate =$12 per mahine hour

2) Under recovery of overhead =$850000 - (60000 hrs * 12)

Under recovery of overhead = $130000 3) Event General entry Debit Credit 1 COGS A/c Dr. $130000 To Overhead A/c $130000