Callen Corp uses a normal job order costing system with manufacturing overhead a

Question

Callen Corp uses a normal job order costing system with manufacturing overhead applied to products on the basis of machine hours. For the upcoming year, Callen Corp estimated total manufacturing overhead cost at $270,000 and total machine hours of 45,000. During the year actual manufacturing overhead incurred was $258,750 and 46,600 machine hours were used

. a. Calculate the predetermined overhead rate.

b. Calculate how much manufacturing overhead will be applied to production.

c. Is overhead over- or underapplied? By how much?

d. What account should be adjusted for over- or underapplied overhead? Should the balance be increased or decreased?

Explanation / Answer

a. Predetemined overhead rate

= Estimated total manufacturing overhead / Estimated total machine hours

= $270,000 / 45,000 machine hours

= $6 per machine hour

b. Manufacturing overhead applied

= Predetermined overhead rate x Actual machine hours used

= $6 x 46,600 machine hours

= $279,600

c. Overhead is over-applied because the amount of actual manufacturing overhead incurred is less than the amount of manufacturing overhead applied.

Over-applied manufacturing overhead = Applied overhead - Actual overhead incurred

= $279,600 - $258,750

= $20,850

d. The cost of goods sold should be adjusted for the over-applied overhead.

Cost of goods sold should be decreased.

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