Ritchie Company adjusts cost of goods sold when overhead is over- or underapplie

Question

Ritchie Company adjusts cost of goods sold when overhead is over- or underapplied. The overhead rate for the year is $2 per direct labor hour. Estimated direct labor hours were 20.000. labor hours were 25,000 and actual overhead cost was $55,000. What is the adjustment to cost Overhead is underapplied by $5,000, therefore add this amount to cost of goods sold. Overhead is overapplied by $5,000, therefore subtract this amount from cost of goods sold. Overhead is underapplied by $15,000, therefore add this amount to cost of goods sold. Overhead is overapplied by $15,000, therefore subtract this amount from cost of goods sold. The following information is reported by Duke Company: end of the accounting period, which of the following would be true?

Explanation / Answer

Over heads applies => 2 * 25000 => $50000 applies vs Actual $55000

hence $5000 under applied and add this amount to cost of goods sold. ie Opton A

Answer 2

Overhead rate => 200000 / 20000 => $10

Actual applied => 18000*10 => $180000 vs actual $175000

hence 5000 over applied ie option A

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