Q.17-20E-c - Horngren'S Financial And Managerial Accounting

Question

Young Foundry uses a predetermined overhead allocation rate to allocate overhead to individual jobs, based on the machine hours required. At the beginning of 2018, the company expected to incur the following:

Manufacturing overhead costs	\(840,000
Direct labor cost	1,480,000
Machine hours	70,000 hours

At the end of 2018, the company had actually incurred:

Direct labor cost	\)1,230,000
Depreciation on manufacturing plant and equipment	620,000
Property taxes on plant	35,500
Sales salaries	26,000
Delivery driver’s wages	22,500
Plant janitor’s wages	17,000
Machine hours	60,000 hours

Requirements

3. Post the manufacturing overhead transactions to the Manufacturing Overhead T-account. Is manufacturing overhead underallocated or overallocated? By how much?

Step-by-Step Solution

Answer

Particulars	Amount ($)	Particulars	Amount ($)
Actual overhead	721,000	Allocated overhead	720,000
		Underallocated overhead	1,000
	721,000		721,000

The manufacturing overhead is underallocated because the allocated overhead is less than the actual overhead incurred by the company by the amount of $1,000.

Actual overhead amount

$$\begin{gathered} \mathbf{actual}\mathbf{ }\mathbf{overhead}\mathbf{ }\mathbf{=}\mathbf{ }\mathbf{depreciation}\mathbf{ }\mathbf{+}\mathbf{ }\mathbf{property}\mathbf{ }\mathbf{tax}\mathbf{ }\mathbf{+}\mathbf{ }\mathbf{sales}\mathbf{ }\mathbf{salaries}\mathbf{ }\mathbf{+}\mathbf{ }\mathbf{delivery}\mathbf{ }\mathbf{driver}\mathbf{ }\mathbf{wages}\mathbf{ }\mathbf{+}\mathbf{ }\mathbf{plant}\mathbf{ }\mathbf{janitor}\mathbf{\text{'}}\mathbf{s}\mathbf{ }\mathbf{wages} \\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{620}\mathbf{,}\mathbf{000}\mathbf{ }\mathbf{+}\mathbf{ }\mathbf{\$}\mathbf{35}\mathbf{,}\mathbf{500}\mathbf{ }\mathbf{+}\mathbf{ }\mathbf{\$}\mathbf{26}\mathbf{,}\mathbf{000}\mathbf{ }\mathbf{+}\mathbf{ }\mathbf{\$}\mathbf{22}\mathbf{,}\mathbf{500}\mathbf{ }\mathbf{+}\mathbf{ }\mathbf{\$}\mathbf{17}\mathbf{,}\mathbf{000} \\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{721}\mathbf{,}\mathbf{000} \end{gathered}$$

The underallocated overhead amount

$$\begin{gathered} \mathbf{under}\mathbf{ }\mathbf{allocated}\mathbf{ }\mathbf{overhead}\mathbf{ }\mathbf{=}\mathbf{ }\mathbf{actual}\mathbf{ }\mathbf{overhead}\mathbf{ }\mathbf{-}\mathbf{ }\mathbf{allocated}\mathbf{ }\mathbf{overhead}\mathbf{ } \\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{721}\mathbf{,}\mathbf{000}\mathbf{ }\mathbf{-}\mathbf{ }\mathbf{\$}\mathbf{720}\mathbf{,}\mathbf{000} \\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{000} \end{gathered}$$

Manufacturing overhead account

The company prepares the manufacturing overhead account in which the actual overhead is recorded in debit side and the allocated overhead is recorded in credit side and the balancing figure of this account is overallocated or underallocated overhead.