Question 3

Outdoor Goods Pty Ltd allocates manufacturing overhead to work in process based on machine hours. On 1 January of the current year, there were no balances in work in process or finished goods inventories. The following estimates were included in the budget for the current year:

Total estimated manufacturing overhead $300 000

Total estimated machine hours 40 000

During January, the firm worked on the following production jobs:

B81 1600 machine hours

J76 2400 machine hours

M49 1000 machine hours

During January, job numbers B81 and J76 were completed, and job number B81 was sold. The actual manufacturing overhead incurred during January was $30 000.

Required:

a) Calculate the company's predetermined overhead rate for the year.

b) How much manufacturing overhead was applied to production during January?

c) Calculate the overapplied or underapplied overhead for January.

d) Prepare journal entry to close the balance calculated in the previous requirement to cost of goods sold.