What methods can be used to dispose of Underapplied or Overapplied manufacturing overhead?

Get answer to your question and much more

31. overhead is overapplied if

Get answer to your question and much more

32. What methods can be used to dispose of underapplied or overapplied manufacturing overhead?

Get answer to your question and much more

33. A credit balance in Manufacturing overhead means overhead wasOverapplied

34. what is underapplied or overapplied overhead

Get answer to your question and much more

35.A measure of activity that is used to assign overhead costs to products and services is a(n)

Get answer to your question and much more

36. To calculate unit per job cost using the job cost sheet

Get answer to your question and much more

37. match each event in the process of accounting for manufacturing overhead with the appropriateentryThe period endsmanufacturing overhead is closedActual overhead is incurredManufacturing overhead is debited

Get answer to your question and much more

38. The journal entry that debits work in process and manufacturing overhead and credits salaries andwages payable is recording

Get answer to your question and much more

39. Place the following steps in requisitioning and issuing materials in order

Get answer to your question and much more

The materials requisition form is presented to the storeroom clerk3A production order is issued

Get answer to your question and much more

The production department prepares a materials requisition form2

40.Actual manufacturing overhead was $50,000, while overhead applied to jobs was $45,000. The entryto dispose of underapplied or overapplied overhead would:

Get answer to your question and much more

41. which account is debited to record direct labor costs?

Get answer to your question and much more

42. Which of the following statements are trueWhen materials are purchased they are recorded in the Raw materials inventory accountRaw materials used in production are transferred to work in process

Get answer to your question and much more

As you’ve learned, the actual overhead incurred during the year is rarely equal to the amount that was applied to the individual jobs. Thus, at year-end, the manufacturing overhead account often has a balance, indicating overhead was either overapplied or underapplied.

If, at the end of the term, there is a debit balance in manufacturing overhead, the overhead is considered underapplied overhead. A debit balance in manufacturing overhead shows either that not enough overhead was applied to the individual jobs or overhead was underapplied. If, at the end of the term, there is a credit balance in manufacturing overhead, more overhead was applied to jobs than was actually incurred. This shows the actual amount was overapplied overhead.

The actual overhead costs are recorded through a debit to manufacturing overhead. The same account is credited when overhead is applied to the individual jobs in production, as shown:

Since the overhead is first recorded in the manufacturing overhead account, then applied to the individual jobs, traced through finished goods inventory, and eventually transferred to cost of goods sold, the year-end balance is eliminated through an adjusting entry, offsetting the cost of goods sold. If manufacturing overhead has a debit balance, the overhead is underapplied, and the resulting amount in cost of goods sold is understated. The adjusting entry is:

If manufacturing overhead has a credit balance, the overhead is overapplied, and the resulting amount in cost of goods sold is overstated. The adjusting entry is:

Returning to our example, at the end of the year, Dinosaur Vinyl had actual overhead expenses of $256,500 and applied overhead expenses of $250,000, as shown:

Since manufacturing overhead has a debit balance, it is underapplied, as it has not been completely allocated. The adjusting journal entry is:

If the overhead was overapplied, and the actual overhead was $248,000 and the applied overhead was $250,000, the entry would be:

To adjust for overapplied or underapplied manufacturing overhead, some companies have a more complicated, three-part allocation to work in process, finished goods, and cost of goods sold. This method is typically used in the event of larger variances in their balances or in bigger companies. (You will learn more about this in future cost or advanced managerial accounting courses.)

Your Turn

Kraken Boardsports

Figure 4.22 (credit: modification of images provided courtesy of Kraken Boardsports, CC BY 4.0)

Kraken Boardsports manufactures winches for snow and ski boarders to snow ski without a mountain or water ski without a lake (Figure 4.22). End-of-year data show these overhead expenses:

Kraken Boardsports had 6,240 direct labor hours for the year and assigns overhead to the various jobs at the rate of $33.50 per direct labor hour.

How much overhead was overapplied or underapplied during the year? What would be the journal entry to adjust manufacturing overhead?

Solution

The total overhead incurred is the total of:

The total overhead applied is $209,040, which is calculated as:

$33.50/direct labor hours × 6,240 direct labor hours.

The balance in manufacturing overhead is a debit balance of $210:

The adjusting journal entry is:

What methods can be used to dispose of Underapplied or Overapplied manufacturing overhead ?'?

What is the more accurate method of closing out the balance in manufacturing overhead?

Which account is debited when manufacturing overhead is applied?

What side of the manufacturing overhead account is applied manufacturing overhead entered on?