Hill Higher Educ X Chapter 3 H Exercise 3-4 Underapplied and Overapplied Overhea

Question

Hill Higher Educ X Chapter 3 H Exercise 3-4 Underapplied and Overapplied Overhead [LO3-4] uses a cost formula that estimates $262640 of total manufacturing overhead for an estimated activity level of 13.400 direct labor-hours The company actually incurred $255.000 of manufacturing overhead and 12.900 direct la during the period 1. Determine the amount of underapplied or overapplied 2. dispose d to Cost of Goods Sold. Would the journal entry to of the underapplied or overapplied overhead increase or decrease the company's gross margin? By how much?

Explanation / Answer

1 Overhead applied=Actual direct labor hours*predetermined overhead rate=12900*19.60=$ 252840 Actual manufacturing overhead=$ 255000 Since actal manufacturing overhead is greater than applied overhead, overhead is said to be under applied Underapplied overhead=255000-252840=$ 2160 Manufacturing overhead Underapplied by $ 2160 2 Journal entry would be Debit Credit Cost of goods sold 2160 Manufacturing overhead 2160 It will increase the cost of goods sold and thus decrease the gross margin The gross margin would Decrease by $ 2160

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