Stellar Packaging Products estimates that the factory overhead for the following

Question

Stellar Packaging Products 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 were 54,300. The actual factory overhead for the year was $1,348,800. (1) Determine the total factory overhead amount applied. (2) Calculate the over- or under applied amount for the year. (3) Prepare the journal entry to close Factory Overhead into Cost of Goods Sold.

Explanation / Answer

Factory Over head rate = Estimated over head / Estimated Machine hours = 1,250,000 / 50,000 = 25 per hour

Factory overhead applied = 54,300 X $ 25 = 1,357,500

Actual Factory Over head = $ 1,348,800

Factory Overhead over applied = 1,357,500 - 1,348,800 = $ 8,700

Journal

Manufacturing overhead Dr $ 8,700

Cost of Goods Sold Cr $ 8,700

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