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Exercise 4-35 (Algo) Application of Overhead [LO 4-4, 4-5]
Tomek Company uses a job costing system that applies factory overhead on the basis of direct labor hours. The company’s factory overhead budget for the
current year included the following estimates:
Budgeted total factory overhead $ 305,000
Budgeted total direct labor hours 61,000
At the end of the year, the company shows these results:
Actual factory overhead $ 321,000
Actual direct labor hours 61,500
Required:
1. Compute the firm’s predetermined factory overhead rate for the current year.
2. Calculate the amount of overapplied or underapplied overhead.
3. Prepare a journal entry to transfer the underapplied or overapplied overhead to the Cost of Goods Sold account.

 Required 2 Required 3 

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1. The Tomek Company's predetermined factory overhead rate for the current year is $5 per direct labor hour.

2. The total amount of underapplied overhead is $13,500.

3. The journal entry to transfer the underapplied overhead to the Cost of Goods Sold account is as follows:

Journal Entry:

Debit Cost of Goods Sold $13,500

Credit Factory Overhead (underapplied) $13,500

What is the predetermined overhead rate?

The predetermined overhead rate allocates manufacturing overhead costs to cost objects (product or service units) based on estimated overhead costs and estimated allocation base.

Using the predetermined rate may give rise to overapplied or underapplied overheads with adjustments to the Cost of Goods Sold.

Data and Calculations:

Budgeted total factory overhead = $305,000

Budgeted total direct labor hours = 61,000

Predetermined overhead rate = $5 ($305,000/61,000)

Actual factory overhead $ 321,000

Actual direct labor hours 61,500

1. The Tomek Company's predetermined factory overhead rate for the current year is $5 per direct labor hour.

2. The total amount of underapplied overhead is $13,500 ($321,000 - $307,500).

Thus, since there was an underapplied overhead, the Cost of Goods Sold will be debited with $13,500 while the Factory Overhead is credited to close the underapplied overhead.

Learn more about the predetermined overhead rate at brainly.com/question/26372929

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