Question

Please Answer Question 2, thank you!

In a job order costing system, a company calculates a Predetermined Overhead Allocation Rate at the beginning of the year to allocate the manufacturing overhead job-by-job.

1. By the end of March, the company had incurred $100,000 of actual overhead costs and allocated overhead of $92,000.
   1. Did the company over or under-allocate? (2pts)
   2. Before any adjustment, would the Manufacturing Overhead account have a debit or credit balance? (2pts)
   3. What would be the proper adjusting journal entry at the end of March? (include accounts and amounts) (3pts)
2. By the end of June, the company had a similar discrepancy between actual and allocated overhead. Should they adjust/recalculate the Predetermined Overhead Allocation Rate before the next year-end? (4pts)

Answer 1

a. Under allocated

Explanation: If Applied overhead is greater than the actual then it is Over allocated and If Applied overhead is Lesser than the actual then it is Under allocated

b. Debit Balance

Explanation: Manufacturing overhead having a debit balance before any adjustment

Manufacturing Overhead
Cash	100000

c. Adjusting entry for Under allocation of manufacturing overhead

Account Title	Debit	Credit
Cost of goods sold	20000
Manufacturing overhead		20000

Yes, They Should adjust/recalculate the Predetermined Overhead Allocation Rate before the next year-end.

Explanation: Predetermined overhead Rate is calculated every year before the year started. It will provide an estimated manufacturing overhead.