Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 10

Prorate Over- or Underapplied Overhead

Refer to the information in Exercise 7-25. Prepare an entry to allocate over- or underapplied overhead to:

a. Work in Process.

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b. Finished Goods.

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c. Cost of Goods Sold.

Step 1 of 5

Predetermined Overhead rate is the estimated manufacturing overhead for the coming year divided by the estimated activity of the allocation base for the year.

Allocation base for Company A is direct Labour cost.

Predetermined rate is calculated as under:

Therefore, the predetermined rate is 1.25