Q19E-b - Horngren'S Financial And Managerial Accounting

Question

Selected cost data for Classic Print Co. are as follows:

Estimated manufacturing overhead cost for the year	$125,000
Estimated direct labor cost for the year	78,125
Actual manufacturing overhead cost for the year	116,000
Actual direct labor cost for the year	67,000

Requirements

2. Prepare the journal entry to allocate overhead costs for the year.

Step-by-Step Solution

Answer

Date	Particulars	Debit ($)	Credit ($)
	Work in process inventory	107,200
	Manufacturing overhead		107,200

Step 1: The predetermined overhead allocation rate per direct labor dollar.

$$\begin{gathered} \mathbf{Predetermined}\mathbf{ }\mathbf{overhead}\mathbf{ }\mathbf{allocation}\mathbf{ }\mathbf{rate}\mathbf{=}\frac{\mathbf{Estimated}\mathbf{ }\mathbf{manufacturing}\mathbf{ }\mathbf{overhead}\mathbf{ }\mathbf{cost}\mathbf{ }\mathbf{for}\mathbf{ }\mathbf{the}\mathbf{ }\mathbf{year}}{\mathbf{Estimated}\mathbf{ }\mathbf{direct}\mathbf{ }\mathbf{labor}\mathbf{ }\mathbf{cost}\mathbf{ }\mathbf{for}\mathbf{ }\mathbf{the}\mathbf{ }\mathbf{year}} \\ \mathbf{=}\frac{\mathbf{\$}\mathbf{125}\mathbf{,}\mathbf{000}}{\mathbf{78}\mathbf{,}\mathbf{125}} \\ \mathbf{=}\mathbf{\$}\mathbf{1}\mathbf{.}\mathbf{60} \end{gathered}$$

Step 2: The overhead allocated during the year

$$\begin{gathered} \mathbf{Overhead}\mathbf{ }\mathbf{allocation}\mathbf{=}\mathbf{Predetermined}\mathbf{ }\mathbf{overhead}\mathbf{ }\mathbf{allocation}\mathbf{ }\mathbf{rate}\mathbf{\times }\mathbf{Actual}\mathbf{ }\mathbf{direct}\mathbf{ }\mathbf{labor}\mathbf{ }\mathbf{cost} \\ \mathbf{=}\mathbf{\$}\mathbf{1}\mathbf{.}\mathbf{60}\mathbf{\times }\mathbf{67}\mathbf{,}\mathbf{000} \\ \mathbf{=}\mathbf{\$}\mathbf{107}\mathbf{,}\mathbf{200} \end{gathered}$$

The manufacturing overhead of the company is allocated in the books of the company by debiting the work in process inventory and by crediting the manufacturing overhead.