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, Han Company estimated the following: Overhead $160,000 Direct labor hours 80,000 Han 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, Han showed the following actual amounts: Overhead $166,000 Direct labor hours 79,600 < Assume that unadjusted Cost of Goods Sold for Han was $176,000, Required: 1. Calculate the predetermined overhead rate for Han. Round your answers to the nearest cent, if rounding is required. per direct labor hour 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. Was overhead over- or underapplied? By how much? overheads 4. Calculate adjusted Cost of Goods Sold after adjusting for the overhead variance.

Answer 1

1) Predetemine overhead rate = Estimated overhead/estimated labor hour = 160000/80000 = $2 per labor hour
2) Overhead applied in january = Number of direct Labour Hours in January X Predetemine overhead rate
Overhead applied in january = 8,450 Hours X$ 2 = $ 16900
3) Total overhead applied for the year = Number of direct Labour Hours for the year X Predetemine overhead rate
Total overhead applied for the year = 79,600 X $2 = $ 159,200
4) Total overhead applied for the year = $ 159,200
Actual Overhead = $ 166,000
Under Appiled Overhead = Total overhead applied - Actual Overhead
Under Appiled Overhead = $ 166,000 - $ 159,200
Under Appiled Overhead = $ (6800)
5) Adjusted cost of goods sold = Unadjusted Cost of Goods Sold + Under Appiled Overhead
Adjusted cost of goods sold = $ 176,000 +$ 6,800
Adjusted cost of goods sold = $ 182,800