Calculating Actual and Applied Manufacturing Overhead Costs and Overor Underapplied Overhead Costs
Verizox Company uses a job order costing system with manufacturing overhead applied to products based on direct labor hours. At the beginning of the most recent year, the company estimated its manufacturing overhead cost at $200,000. Estimated direct labor cost was $500,000 for 20,000 hours (average of $25 per hour).
Actual costs for the most recent month are summarized here:
Required:
1. Calculate the predetermined overhead rate.
2. Calculate the amount of applied manufacturing overhead.
3. Calculate actual manufacturing overhead costs. Explain which costs you excluded and why.
4. Compute over- or underapplied overhead.
5. Suppose that the over- or underapplied manufacturing overhead was not properly transferred to Cost of Goods Sold at the end of the period. Explain the impact that oversight would have on Verizox’s cost of goods sold and net income for the period.
6. Prepare the journal entry to apply manufacturing overhead to Work in Process Inventory.
7. Prepare the journal entry to record actual manufacturing overhead costs. The credit can be to a generic account titled Cash, Payables, and so on.
8. Prepare the journal entry to transfer the Manufacturing Overhead account balance to Cost of Goods Sold. Does this increase or decrease Cost of Goods Sold? Why?