From the information given below:

1. Calculate the predetermined overhead rate.

2. Calculate any under- or overapplied overhead.

3. Prepare the journal entry to write off any under- or overapplied overhead against cost of goods sold.

Canada Traders Pty Ltd, manufacturer containers for the food industry. The company has installed a job order costing system and uses machine hours to apply its overhead to work in process. On 1September 2020, the management estimated that the company would incur $1 360 000 in manufacturing overhead costs and 128 000 machine hours for the coming year.

During September 2020 Canada Traders used 122 000 machine hours and incurred the following costs:

Repairs and maintenance Depreciation Indirect materials Utilities and supplies Insurance

$ 128 000 420 000 168 000 344 000 184 000

Solution:

Predetermined overhead rate:

Over/Under applied overheads:

Journal entry	DR	CR