Question

Mattie Corporation, which applies manufacturing overhead on the basis of machine-hours, has provided the following data for its year 2019 operations: Estimated manufacturing overhead $239,500 Estimated machine-hours 4,500 Actual manufacturing overhead $241,900 Actual machine hours 5,500

Use the data to answer the following questions (a - d).

a. The predetermined overhead rate would be:

b. The applied manufacturing overhead for the year is:

c. Was the overhead for the year over applied or under applied? By how much?

d. When the difference in overhead is closed out to cost of goods sold (COGS), will it increase COGS or decrease COGS? What is the effect on final net income?

Answer 1

Answers

• [a] Predetermined overhead rate = $ 239500 estimated overhead / 4500 estimated MH
  = $ 53.22 per MH
• [b] Applied overhead = $ 53.22 x 5500 actual MHs
  = $ 292,710
• [c]
  Applied overhead = $ 292710
  Actual Overhead = $ 241900
  Hence,
  Overheads are OVERAPPLIED.
  They are overapplied by $ 50,810 [292710 – 241900]
• [d]
  Cost of Goods Sold will DECREASE because the overheads were over applied.

As a result of decrease in cost of goods sold, the final NET Income will INCREASE.