Calculating the Predetermined Overhead Rate, Applying Overhead to Production, Re
ID: 2556609 • Letter: C
Question
Calculating the Predetermined Overhead Rate, Applying Overhead to Production, Reconciling Overhead at the End of the Year, Adjusting Cost of Goods Sold for Under- and Overapplied Overhead
At the beginning of the year, Horvath Company estimated the following:
Horvath uses normal costing and applies overhead on the basis of direct labor hours. For the month of January, direct labor hours were 8,450. By the end of the year, Horvath showed the following actual amounts:
Assume that unadjusted Cost of Goods Sold for Horvath was $336,000.
Required:
1. Calculate the predetermined overhead rate for Horvath. Round your answers to the nearest cent, if rounding is required.
2. Calculate the overhead applied to production in January. (Note: Round to the nearest dollar, if rounding is required.)
3. Calculate the total applied overhead for the year.
4. Calculate adjusted Cost of Goods Sold after adjusting for the overhead variance.
Overhead $240,000 Direct labor hours 80,000Explanation / Answer
1. The predetermined overhead rate = Estimated Overhead / Estimated Direct Labor Hours
= $ 240,000 / 80,000 direct labor hours
= $3 per direct labor hour
Hence the correct answer is $3 per direct labor hour
2. overhead applied to production in January = predetermined overhead rate * direct labor hours for January
= $ 3 per direct labor hour * 8,450 direct labor hours
= $ 25,350
Hence the correct answer is $ 25,350
3.
Total Applied Overhead = predetermined overhead rate * direct labor hours for the year
= $ 3 *79,600 Direct Labor Hours
= $ 238,800
Hence the correct answer is $ 238,800
4.
Actual Overhead = $ 246,000
Total Applied Overhead = $ 238,800
Since the Actual Overhead is more than the Total Applied Overhead , hence overhead is underapplied.
Hence, Underapplied Overhead = $ 246,000 - $ 238,800
= $ 7,200
Unadjusted Cost of Goods Sold = $ 336,000
Hence the adjusted Cost of Goods Sold = Unadjusted Cost of Goods Sold + Underapplied Overhead
= $ 336,000 + $ 7,200
= $ 343,200
Hence the correct answer is $ 343,200
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