Easy Decorating uses a job order costing system to collect the costs of its inte

Question

Easy Decorating uses a job order costing system to collect the costs of its interior decorating business. Each client's consultation is treated as a separate job. Overhead is applied to each job based on the number of decorator hours incurred. Listed below are data for the current year.
Budgeted overhead $960,000
Actual overhead $732,800
Budgeted decorator hours 40,000
Actual decorator hours 30,100

The company uses Operating Overhead in place of Manufacturing Overhead.

i dont understand how to journalize this and determine the predetermined rate as well as houw much was under/over applied.

Explanation / Answer

Data given

$

Budgeted over heads

960000

Budgeted decorator hours

40000

Predetermined over head rate= Estimated total manufacturing overhead/

Estimated total amount of the allocation base

predetermined over head rate=960000/40

24

Total manufacturing overhead applied= predetermined rate× Actual base

24×30100

722400

Actual manufacturing over heads incurred

732800

Actual manufacturing over heads applied

722400

under applied

10400

Cost of goods sold

10400

       Manufacturing over heads

10400

Data given

$

Budgeted over heads

960000

Budgeted decorator hours

40000

Predetermined over head rate= Estimated total manufacturing overhead/

Estimated total amount of the allocation base

predetermined over head rate=960000/40

24

Total manufacturing overhead applied= predetermined rate× Actual base

24×30100

722400

Actual manufacturing over heads incurred

732800

Actual manufacturing over heads applied

722400

under applied

10400

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