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Predetermined Overhead Rate, Overhead Variances, Journal Entries

Craig Company uses a predetermined overhead rate to assign overhead to jobs. Because Craig's production is machine intensive, overhead is applied on the basis of machine hours. The expected overhead for the year was $$5\mathrm{.}7$ million, and the practical level of activity is $375,000$ machine hours.

During the year, Craig used $382,500$ machine hours and incurred actual overhead costs of $$5\mathrm{.}73$ million. Craig also had the following balances of applied overhead in its accounts:

Work$-$in$-$process inventory $ $576,000$

Finished goods inventory $624,000$

Cost of goods sold $1,800,000$

Required:

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$1.$ Compute a predetermined overhead rate for Craig. Round your answer to the nearest cent.

$fill in the blank $551$c$33$fd$802$bf$9$b$\_1$

$15\mathrm{.}20$

per machine hour

$2.$ Compute the overhead variance, and label it as under$-$ or overapplied.

$fill in the blank $551$c$33$fd$802$bf$9$b$\_2$

$84,000$

overapplied

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$1.$ Predetermined OH rate $=$ Budgeted annual overhead $-$: Budgeted annual driver level

$2.$ Calculate over$-$ or underapplied by subtracting Applied OH from Actual OH

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$3.$ Assuming the overhead variance is immaterial, prepare the journal entry to dispose of the variance at the end of the year.

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Overhead control

Cost of goods sold

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$3.$ If an overhead variance is immaterial, it is assigned to cost of goods sold.

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$4.$ Assuming the overhead variance is material, prepare the journal entry that appropriately disposes of the overhead variance at the end of the year. If an amount box does not require an entry, leave it blank.

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Overhead control

Work$-$in$-$process inventory

Finished goods inventory

Cost of goods sold

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