Accounting for underapplied or overapplied overhead The Digbie Manufacturing Com- pany uses a predetermined manufacturing overhead rate
Question:
Accounting for underapplied or overapplied overhead The Digbie Manufacturing Com- pany uses a predetermined manufacturing overhead rate to apply overhead cost to its products. The rate for 1992 was $12.00 per machine hour. Company policy is to assign any underapplied or overapplied overhead to the Cost of Goods Sold account. If underapplied or overapplied over- head is greater than 15 percent of actual overhead, the amount is assigned to Work in Process, Finished Goods, and Cost of Goods Sold in proportion to the amount of applied overhead that remains in the three accounts at year end. (Note that the total amount of overhead in the three product cost accounts is larger than the amount of applied overhead for the year because there were beginning inventories at the start of the year.) At the end of 1992 the following account balances existed:
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