Clemmens Company applies overhead based on direct labor cost. Estimated overhead

Question

Clemmens Company applies overhead based on direct labor cost. Estimated overhead and direct labor costs for the year were $121,500 and $125,900, respectively. During the year, actual overhead was $108,300 and actual direct labor cost was $112,500. The entry to close the over- or underapplied overhead at year-end assuming an immaterial amount, would include (Round predetermined overhead rate to nearest whole percentage): O A credit to Factory Overhead for $825 O A debit to Work in Process Inventory for $825 A debit to Cost of Goods Sold for $825 O A credit to Finished Goods Inventory for $825 OA credit to Cost of Goods Sold for $825

Explanation / Answer

Solution: Option(e) is correct i.e. A credit to Cost of Goods Sold for $825.

Explanation:

Predetermined overhead rate;

= (121500*100)/125900 = 97% (approx)

Overhead Applied = DLC*97% = 112500*97%

= $109,125

Therefore, Applied - Actual = 109125 - 108300

= $825 (overapplied)

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