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Required
a. ErgoFurn incurred $395,000 in manufacturing overhead in December. Given that expenditure, was manufacturing overhead under- or overapplied for the year? By how much?
b. Why was overhead under- or overapplied for the year?
c. Assume that ErgoFurn closes under- or overapplied overhead to the Cost of Goods Sold account. Prepare the journal entry to close the manufacturing overhead account.
d. Assume that ErgoFurn prorates under- or overapplied overhead to the appropriate accounts. Calculate the allocated amounts and adjust the account balances as needed.
e. Which method of under- or overapplied overhead disposition is more appropriate for
ErgoFurn? Why?
SOLUTION
a.
| Applied OH, Jan. – Nov. | 830,000 MH × $5/MH = | $4,150,000 | |
|---|---|---|---|
| Applied OH, Dec. | 49,900a MH × $5/MH = | 249,500 | |
| Total Applied OH | $4,399,500 | ||
| Actual OH, Jan. – Nov. | 4,274,500 | ||
| Actual OH, Dec. | 395,000 | ||
| Total Actual OH | ( 4,669,500) | ||
| Underapplied OH | ($ 270,000) |
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