Q19E-c - 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

3. Use a T-account to determine the amount of underallocated or overallocated

manufacturing overhead.

Step-by-Step Solution

Answer

                                Manufacturing overhead account

Particulars	Amount ($)	Particulars	Amount ($)
Actual overhead	116,000	Allocated overhead	107,200
		Underallocated overhead	8,800
	116,000		116,000

Step 1: Overhead allocation

Overhead allocation is defined as the apportionment of indirect cost to the manufactured goods of the company during the year.

Step 2: The Underallocated overhead amount

$$\begin{gathered} \mathbf{Under}\mathbf{ }\mathbf{allocation}\mathbf{ }\mathbf{overhead}\mathbf{=}\mathbf{Actual}\mathbf{ }\mathbf{overhead}\mathbf{-}\mathbf{Allocated}\mathbf{ }\mathbf{overhead} \\ \mathbf{=}\mathbf{\$}\mathbf{116}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{\$}\mathbf{107}\mathbf{,}\mathbf{200} \\ \mathbf{=}\mathbf{\$}\mathbf{8}\mathbf{,}\mathbf{800} \end{gathered}$$

Step 3: Manufacturing overhead account

The manufacturing overhead is prepared to show the actual and allocated overhead. While preparing this account, actual overhead is shown in the debit side of the account and the allocated overhead is shown in the credit side and the balanceing figure of the account is termed as either the overallocated overhead or the underallocated overhead.