Cadburn Corp. uses a job order costing system with manufacturing overhead applied to products on the basis of direct labor hours. For the upcoming year, Cadburn Corp. estimated total manufacturing overhead cost at $250,000 and total direct labor hours of 50,000. During the year actual manufacturing overhead incurred was $262,500 and 51,000 direct labor hours were used.a. Calculate the predetermined overhead rate.b. Calculate how much manufacturing overhead will be applied to production.c. Is overhead over- or underapplied? By how much?d. What account should be adjusted for over- or underapplied overhead? Should the balance be increased or decreased?

Question

What will be an ideal response?

Answer 1

a. $5
b. $255,000
c. $7,500 underapplied
d. Cost of goods sold, increased with a debit and manufacturing overhead decreased and closed out with a credit.
 
a. Calculate the predetermined overhead rate by dividing estimated overhead by estimated allocation base ($5 = $250,000/50,000).
b. Calculate applied overhead by multiplying the predetermined overhead rate by the actual allocation base ($255,000 = $5 × 51,000).
c. Calculate over- or underapplied overhead by subtracting applied overhead from actual overhead ($7,500 = $262,500 - $255,000). This amount is underapplied since actual overhead exceeds applied overhead and would be represented by a debit balance in the manufacturing overhead account.
d. Increase cost of goods sold by $7,500 with a direct adjustment to credit the manufacturing overhead account and debit the cost of goods sold account.