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PA8.
LO 4.6Coop’s Stoops estimated its annual overhead to be $85,000 and based its predetermined overhead rate on 24,286 direct labor hours. At the end of the year, actual overhead was $90,000 and the total direct labor hours were 24,100. What is the entry to dispose of the overapplied or underapplied overhead?

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Answer:

                                                                          Debit             Credit

Factory overheads applied                              $85,000

Profit and loss account                                     $5,000

(90,000-85,000)

Factory overheads control account                                       $90,000

Explanation:

The entry to dispose of the overapplied or underapplied overhead are as under:

                                                                          Debit             Credit

Factory overheads applied                              $85,000

Profit and loss account                                     $5,000

(90,000-85,000)

Factory overheads control account                                       $90,000

(Factory overheads applied transferred to  overheads control a/c and under applied  overheads charged to P&L account)                  

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