Ikerd Company applies manufacturing overhead to jobs on the basis of machine hours used. Overhead costs are expected to total $300,000 for the year, and machine usage is estimated at 125,000 hours.

For the year, $322,000 of overhead costs are incurred and 130,000 hours are used.

Manufacturing overhead rate $Ikerd Company applies manufacturing overhead to jo per machine hour
Manufacturing Overhead $Ikerd Company applies manufacturing overhead to jo
Prepare the adjusting entry to assign the under- or overapplied overhead for the year to cost of goods sold.

Instructions are listed below

Explanation:

Giving the following information:

Overhead costs are expected to total $300,000 for the year, and machine usage is estimated at 125,000 hours.

For the year, $322,000 of overhead costs are incurred and 130,000 hours are used.

First, we need to calculate the estimated overhead rate. Then, we can apply overhead based on actual machine hours. Finally, we determine the under/over allocated overhead.

To calculate the estimated manufacturing overhead rate we need to use the following formula:

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Estimated manufacturing overhead rate= 300,000/125,000= $2.4 per machine-hour

Now, we can allocate overhead:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Allocated MOH= 2.4*130,000= $312,000

Over/under allocation= real MOH - allocated MOH

Over/under allocation= 322,000 - 312,000= $10,000 underallocated

Cost of goods sold               10,000

                      Factory overhead               10,000