Milsaps Company produces sportsmen’s digital scales. In preparing the current bu

Question

Milsaps Company produces sportsmen’s digital scales. In preparing the current budget, Milsaps’ controller estimates a total of $278,000 in direct materials cost, $240,000 in direct labor cost, and $360,000 in manufacturing overhead costs. Since much of the production process requires skilled workers to assemble the scales, direct labor cost is used as the overhead application base. At the end of the period, Milsaps reported actual results as follows: direct materials cost of $313,000, direct labor cost of $193,000, and manufacturing overhead cost $284,370.

(a) What is Milsaps’ predetermined overhead rate for the year?

(b).How much manufacturing overhead did Milsaps apply during the year?

(c). What is the journal entry to close overhead if the amount is considered to be insignificant?

Explanation / Answer

Part A)

The predetermined overhead rate can be calculated with the use of following formula

Predetermined Overhead Rate = Estimated Manufacturing Overheads/Direct Labor Cost*100

Using the values provided in the question, we get,

Predetermined Overhead Rate = 360,000/240,000*100 = 150%

_________

Part B)

The amount of overhead applied during the year is calculated as follows:

Overhead Applied = Actual Direct Labor Cost*Predetermined Overhead Rate = 193,000*150% = $289,500

_________

Part C)

In the given case, the overhead would be over-applied by $5,130 (289,500 - 284,370). The journal entry to close the overhead would involve a debit to manufacturing overhead and a credit to cost of goods sold with the amount of overapplied overhead. The journal entry is given below:

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