Metal Foundry uses a predetermined overhead allocation rate to allocate overhead to individual jobs, based on the machine hours required. At the beginning of 2016, the company expected to incur the following:
Manufacturing overhead cost......... $ 870,000
Direct labor costs............. 1,450,000
Machine hours............... 72,500 hours
At the end of 2016, the company had actually incurred:
Direct labor cost..................$ 1,160,000
Depreciation on manufacturing plant and equipment.. 610,000
Property taxes on plant............... 40,000
Sales salaries................... 27,500
Delivery drivers’ wages.............. 24,000
Plant janitor’s wages................ 18,000
Machine hours65,000 hours
Requirements
1. Compute Metal’s predetermined overhead allocation rate.
2. Prepare the journal entry to allocate manufacturing overhead.
3. Post the manufacturing overhead transactions to the Manufacturing OverheadT-account. Is manufacturing overhead underallocated or overallocated? By how much?
4. Prepare the journal entry to adjust for the underallocated or overallocated manufacturing overhead. Does your entry increase or decrease cost of goods sold?