The Winston Company estimates that the factory overhead for the following year w

Question

The Winston Company estimates that the factory overhead for the following year will be $1,250,000. The company has decided that the basis for applying factory overhead should be machine hours, which is estimated to be 50,000 hours, The total machine hours for the year was 54,300. The actual factory overhead for the year was $1,348,800. Determine the total factory overhead amount applied. Calculate the over or under applied amount for the year. Prepare the journal entry to close factory overhead into Cost of Goods Sold.

Explanation / Answer

Answer

The predetermined overhead rate is $1,250,000 / 50,000 machine hours = $25 per machine hour

a. The total factory OH amount applied =$25 per machine hour x 54,300 machine hours = $1,357,500

b. Under applied OH

Actual $1,375,000
Applied ($1,357,500)
Underapplied OH $17,500

C.

Journal Entry

Debit Cost of Goods Sold A/c $17,500
Credit Factory Overhead A/c          $17,500

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