Computation of Applied Overhead and Underapplied$/$Overapplied Overhead

Description

Amount

Predetermined Overhead Rate

$$11$ per direct labor hour

Manufacturing Overhead Applied

$$305,360$

Actual Manufacturing Overhead Cost

$$302,750$

Underapplied $($Overapplied$)$ Overhead

$($$$2,610)$ overapplied

Schedule of Cost of Goods Manufactured

Description

Amount

Raw Materials Inventory, Beginning

$$15,000$

Add: Purchases of Raw Materials

$$375,000$

Total Raw Materials Available

$$390,000$

Deduct: Raw Materials Inventory, Ending

$$11,375$

Raw Materials Used in Production

$$378,625$

Direct Labor

$$536,300$

Manufacturing Overhead Applied to Work in Process

$$305,360$

Total Manufacturing Costs

$$1,220,285$

Add: Beginning Work in Process Inventory

$$27,875$

Deduct: Ending Work in Process Inventory

$$22,350$

Cost of Goods Manufactured

$$1,225,810$

Schedule of Cost of Goods Sold

Description

Amount

Finished Goods Inventory, Beginning

$$34,600$

Add: Cost of Goods Manufactured

$$1,225,810$

Cost of Goods Available for Sale

$$1,260,410$

Deduct: Finished Goods Inventory, Ending

$$26,450$

Unadjusted Cost of Goods Sold

$$1,233,960$

Add: Underapplied $($Overapplied$)$ Overhead

$-$$$2,610$

Adjusted Cost of Goods Sold

$$1,231,350$

With the information above please answer the below questions:

Based upon the Excel assignment completed, what are possible causes for the difference between allocated and actual overhead?

What steps, if any, can a business take to minimize differences between allocated and actual overhead?

What is the impact on a business' income statement if overhead is consistently underapplied to jobs?