Young Foundry uses a predetermined overhead allocation rate to allocate overhead to individual jobs, based on the machine hours required. At the beginning of 2018, the company expected to incur the following:
Manufacturing overhead costs ......................... $ 840,000
Direct labor costs ........................................ 1,480,000
Machine hours ........................................ 70,000 hours
At the end of 2018, the company had actually incurred:
Direct labor costs ........................................................ $ 1,230,000
Depreciation on manufacturing plant and equipment ................... 620,000
Property taxes on plant ........................................................ 35,500
Sales salaries .................................................................... 26,000
Delivery drivers' wages ....................................................... 22,500
Plant janitor's wages ............................................................ 17,000
Machine hours ............................................................ 60,000 hours
Requirements
1. Compute Young's predetermined overhead allocation rate.
2. Prepare the journal entry to allocate manufacturing overhead.
3. Post the manufacturing overhead transactions to the Manufacturing Overhead T-account. Is manufacturing overhead under allocated or over allocated? By how much?
4. Prepare the journal entry to adjust for the under allocated or over allocated manufacturing overhead. Does your entry increase or decrease Cost of Goods Sold?