Amalgamated Machining is a sheet-metal fabricator. The company's total factory overhead costs are a linear function of machine usage. The company's theoretical capacity is 25,000 machine hours (MH) per year, practical capacity is 15,000 MH per year, and normal capacity is 8,000 MH per year; 10,000 MH were expected to be the actual activity for the year just ended.
At the beginning of each year, the company budgets the expected actual factory overhead costs for the coming year and divides it by the budgeted (expected actual) MH for the coming year. The result is the predetermined factory overhead rate.
Actual activity in the year just ended was 9,500 MH, and budgeted factory overhead costs were $3,500,000. The factory overhead budget would be $3,000,000 at normal capacity. Actual factory overhead costs for the year totaled $3,470,000.
Required:
(1) Calculate the amount of over- or under applied factory overhead for the year just ended.
(2) If the company had used practical capacity as the activity level in its predetermined overhead rate calculation for the year just ended, what would have been the predetermined overhead rate per MH? (Calculate to two decimal places, and assume the practical capacity level of activity is within the relevant range.)
(3) Without influencing your answer to requirement 1, now assume factory overhead was under applied by $10,000. Give the end-of-period entries to close Applied Factory Overhead to Factory Overhead Control and to close Factory Overhead Control to Cost of Goods Sold.
(4) Without influencing your answers to the preceding requirements, assume overhead was under applied by $10,000 and Applied Factory Overhead has already been closed to Factory Overhead Control. The under applied amount is to be allocated to inventories and cost of goods sold in proportion to the balances in those accounts. The balances in Work in Process, Finished Goods, and Cost of Goods Sold are $200,000, $400,000, and $7,400,000, respectively. In all previous years, the over- or under applied factory overhead was treated as an adjustment to income or expense. Beginning inventories were insignificant. Give the end-of-period entry to close Factory Overhead Control.