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A business estimates that factory overhead costs will be $350,000 and direct labor costs will be $175,000 for 2019
A business estimates that factory overhead costs will be $350,000 and direct labor costs will be $175,000 for 2019. The business uses direct labor cost to apply factory overhead to products. The actual direct labor costs for 2019 are $190,000 and the actual factory overhead costs are $395,000. Prepare the entry to close the over or under applied overhead to cost of goods sold.
Expert Solution
Workings:
Given,
Estimated Factory overhead cost = $350,000
Estimated direct labor cost = $175,000
Predetermined overhead rate = Estimated manufacturing overhead cost/Estimated direct labor hour cost
= 350,000/175,000
= 200 of direct labor cost
Actual direct labor cost = 190,000
Applied manufacturing overhead = Actual direct labor cost Predetermined overhead rate
= 190,000 * 200%
= $380,000
Actual Factory Overhead Costs = $395,000
Under applied manufacturing overhead = Actual Factory Overhead Costs - Applied manufacturing overhead
= 395,000 - 380,000
= $15,000
PFA
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