Rosemont Music is a musical instrument repair facility located in Akron, Ohio. The repair shop uses a job-order costing system and applies overhead costs to repair jobs on the basis of repair technician hours. The following estimates were used in preparing the predetermined overhead rate at the beginning of the year:
Repair technician hours..... 8,000
Estimated overhead costs..... $168,000
During the year, the opening of another musical instrument repair shop in the same area resulted in fewer repair jobs being worked at Rosemont Music. The company’s cost records revealed the following actual cost and operating data for the year:
Technician hours........ 5,000
Overhead costs........ $108,000
a. Compute the company’s predetermined overhead rate.
b. Compute the under- or overapplied overhead.
c. Assume that the company closes any under- or overapplied overhead directly to Cost of Goods Sold. Prepare the appropriate journal entry.