Analyze manufacturing overhead (Learning Objectives 4, 5)

Precious Treasures manufactures jewelry boxes. The primary materials (wood, brass, and glass) and direct labor are traced directly to the products. Manufacturing over¬ head costs are allocated based on machine hours. Data for 2007 follow:

Requirements 1. Compute the predetermined manufacturing overhead rate.
2. Post actual and allocated manufacturing overhead to the Manufacturing Overhead T-account.
3. Close the underallocated or overallocated Manufacturing Overhead to Cost of Goods Sold.
4. The predetermined manufacturing overhead rate usually turns out to be inaccu¬ rate. Why don’t accountants use just the actual manufacturing overhead rate?

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Budget Actual Machine hours..... 28,000 hours 32,800 hours Direct labor hours........ 42,000 hours 40,000 hours Wood.............. $150,000 $148,000 Maintenance labor (repairs to equipment)...... _ 9,000 22,500 Plant supervisor's wages... 40,000 44,000 Screws, nails, and glue........... 20,400 41,000 Plant utilities.......... 45,600 90,850 Brass.......... 75,000 70,500 Glass................ 125,000 126,275 Freight-out..... 35,000 44,500 Direct labor.................. 65,000 63,000 Depreciation on plant and equipment 81,000 81,000 Advertising expenses. 40,000 55,000