The Winston Company estimates that the factory overhead for the following year will be $1,250,000. The company has decided that the basis for applying factory overhead should be machine hours, which is estimated to be 50,000 hours. The total machine hours for the year were 54,300. The actual factory overhead for the year was $1,375,000. a) Determine the total factory overhead amount applied. b) Calculate the over or under applied amount for the year. c) Prepare the journal entry to close factory overhead into Cost of Goods Sold.

Instructions are below.

Explanation:

Giving the following information:

Estimated factory overhead= $1,250,000.

Estimated machine-hours= 50,000 hours.

The total machine hours for the year were 54,300. The actual factory overhead for the year was $1,375,000.

First, we need to determine the predetermined manufacturing overhead rate:

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

Estimated manufacturing overhead rate= 1,250,000/50,000= $25 er machine hour

Now, we can allocate overhead:

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

Allocated MOH= 25*54,300=  $1,357,500

Finally, we calculate the under/over allocation:

Under/over applied overhead= real overhead - allocated overhead

Under/over applied overhead= 1,375,000 - 1,357,500

Under/over applied overhead= $17,500 underapplied

Cost of goods sold                 17,500

                           Manufacturing overhead          17,500

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