Holland Woodworking uses normal costing and allocates manufacturing overhead to jobs based on a budgeted labor PDF

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Holland Woodworking uses normal costing and allocates manufacturing overhead to jobs based on a budgeted labor-hour rate and actual direct labor-hours. Under- or overallocated overhead, if immaterial, is written off to cost of goods sold. During 2014, Holland recorded the following: Budgeted manufacturing overhead costs Budgeted direct labor-hours Actual manufacturing overhead costs Actual direct labor-hours

$4,400,000 200,000 4,650,000 212,000

Required: 1. Compute the budgeted manufacturing overhead rate. 2. Prepare the summary journal entry to record the allocation of manufacturing overhead. 3. Compute the amount of under- or overallocated manufacturing overhead. Is the amount significant enough to warrant proration of overhead costs, or would it be permissible to write it off to cost of goods sold? Prepare the journal entry to dispose of the under- or overallocated overhead. SOLUTION (10–15 min.)

1.

Accounting for manufacturing overhead.

$4, 400, 000 Budgeted manufacturing overhead rate = 200,000 labor-hours = $22 per direct labor-hour

2.

Work-in-Process Control Manufacturing Overhead Allocated (212,000 direct labor-hours  $22 per direct labor-hour = $4,664,000)

4,664,000 4,664,000

3. $4,650,000– $4,664,000 = $74,000 overallocated, an insignificant amount of difference compared to manufacturing overhead costs allocated $14,000 ÷ $4,664,000 = 0.3%. If the quantities of work-in-process and finished goods inventories are small, the difference between proration and write off to Cost of Goods Sold account would be very small compared to net income. Manufacturing Overhead Allocated 4,664,000 Manufacturing Department Overhead Control 4.650,000 Cost of Goods Sold...