Jackson foundry uses a predetermined overhead allocation rate to allocate overhead to individual jobs, based on the machine hours required.

1. compute jackson's predetermined overhead allocation rate (formula needed)
2. prepare the journal entry to allocate manufacturing overhead. (debits first then credits)
3. is manufacturing overhead under-allocated or over-allocated? by how much?
4. prepare the journal entry to adjust for the under-allocated or over-allocated manufacturing overhead. (debits first, then credits). does your entry increase or decrease cost of goods sold?

at the beginning of the month, the company expected to incur the following:

- mfg. overhead costs $880,000
- direct labor costs 1,540,000
- machine hours 80,000 hours

at the end, these are actual results:

- direct labor $1,210,000
- depreciation on mfg. plant and equip. 530,000
- property taxes on plant 36,500
- sales salaries 29,500
- delivery wages 20,500
- plant janitor's wages 24,000
- machine hours 60,000 hours

1) $ 11 per hour

2) Work in Process (Debit)                                      660,000

   Manufacturing overhead clearing (credit)         660,000

3) Manufacturing overhead is over-allocated by $ 69,500

4) Manufacturing overhead clearing (debit)         69,500

   Cost of good sold                                               69,500

Yes, the entry decreases the cost of goods sold as the actual overhead expenses are less than the applied over head cots.

Explanation:

1) Overhead rate = Expected manufacturing overhead / Estimated number of machine hours

Overhead rate: 880,000 / 80,000 = $ 11 / machine hour

2) Journal entry is recorded based on every hour worked during the period. Since 60,000 hours are worked so total of 660,000 manufacturing overheads are recorded using following entry.

Work in Process (Debit)                                      660,000

Manufacturing overhead clearing (credit)         660,000

3) Under-application results when actual manufacturing overheads are higher than expectation and vice versa. In question provided total hours were 60,000 instead of 80,000 budgeted hours, further actual cost amounted to $590,500 (530,000 for depreciation, 36,500 for property taxes, 24,000 plant janitor), thus there is over application by 660,000 - 590,500 = 69,500.

Note: Sales salaries and delivery wages are not included in overhead expenses as they are not part of manufacturing overheads.

4) Manufacturing overhead clearing (debit)         69,500

   Cost of good sold                                               69,500

As there is over application of overhead expenses so there is a credit in manufacturing overhead account, so in order to clear the clearing account balance is transferred to cost of goods sold resulting in net profit to bottom line.

answer; niosh, the national institute for occupational safety and health;