I don\'t understand this one 2 0 Schulz Corporation applies overhead based upon

Question

I don't understand this one

2 0 Schulz Corporation applies overhead based upon machine-hours. Budgeted factory overhead was $266,400 and budgeted machine-hours were 18,500. Actual factory overhead was $287,920 and actual machine-hours were 19,050. Before disposition of under/overapplied overhead, the cost of goods sold was $560,000 and ending inventories were as follows: Direct materials WIP Finished goods S 60,000 190,000 250,000 $500,000 Total Required: . Determine the budgeted factory overhead rate per machine-hour. . Compute the over/underapplied overhead. Prepare the journal entry to dispose of the variance using the proration approach

Explanation / Answer

1) budgeted fixed overhead per machine hour = 266400/18500 =14.4 per Machine hour

2) over absorption of overhead = 19050*14.4-266400=7920

3)overabsorption of overhead a/c Dr 7920

To cost of goods sold a/c. 7920

(Being over absorption of overhead recognised)

4) overabsorption of overhead a/c Dr. 7920

To work in process a/c. 1505

To finished goods inventory a/c 1980

To cost of goods sold a/c. 4435

(Being over absorption of overhead recognised proportionally)

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