Question

1. Baba Company is a manufacturing firm that uses job-order costing. The company's inventory balances were as follows at the beginning and end of the year:

           

		Beginning Balance	Ending Balance
	Raw materials....................	$22,000	$25,000
	Work in process.................	$52,000	$34,000
	Finished goods..................	$121,000	$136,000

The company applies overhead to jobs using a predetermined overhead rate based on machine-hours. At the beginning of the year, the company estimated that it would work 40,000 machine-hours and incur $200,000 in manufacturing overhead cost. The following transactions were recorded for the year:

• Raw materials were purchased, $412,000.
• Raw materials were requisitioned for use in production, $409,000 $(342,000 direct and $67,000 indirect).
• The following employee costs were incurred: direct labor, $314,000; indirect labor, $67,000; and administrative salaries, $129,000.
• Selling costs, $135,000.
• Factory utility costs, $25,000.
• Depreciation for the year was $102,000 of which $90,000 is related to factory operations and $12,000 is related to selling, general, and administrative activities.
• Manufacturing overhead was applied to jobs. The actual level of activity for the year was 44,000 machine-hours.
• Sales for the year totaled $1,198,000.

           

            Required:

1. What is the Company’s Predetermined Overhead Rate
2. What is the Amount of Allocated Overhead
3. What is the amount of Actual Overhead
4. Was the overhead under-allocated or over-allocated? By how much?

Prepare the Journal Entry to close out the over/under allocated

Answer 1

a) Predetermine overhead rate = 200000/40000 = $5 per machine hour

b) Amount of allocated overhead = 44000*5 = $220000

c) Actual overhead = 67000+67000+25000+90000 = 249000

d) Under allocated overhead = 249000-220000 = $29000

Journal entry

Date	account and explanation	debit	credit
	Cost of goods sold	29000
	Manufacturing overhead		29000
	(To record under allocated overhead)