A company allocates overhead at a rate of 160 of direct labo

A company allocates overhead at a rate of 160% of direct labor cost. Actual overhead cost for the current period is $1,100,000, and direct labor cost is $505,000.

Determine whether there is over- or underapplied overhead using T-account.

Record the entry to assign underapplied /overapplied overhead

Solution

Allocated overhead = $505000 * 160 %

= $808000

Actual overhead = $ 1100000

Under applied overhead = $1100000 - $808000

= $292000

Journal entry

Cost of goods sold A/c Dr.       $292000

      Tp factory Overhead A/c                   $292000

(Underapplied overhead are assigned to COGS)