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:
Estimated manufacturing overhead costs Estimated machine hours Machine Hour Rate	1,360,000 128,000 1,360,000/128,000= 10.625

Over/Under applied overheads:
Overhead applied Actual Mfg OH incurred during 2021 Manitenance Depreciation Indirect Materials Utilities Insurance Total Manufacturing OH incurred Manufacturing overhead applied at predetermined rate in 2021. Overapplied Mfg OH in 2021=	122,000x10.625 = $1,296,250 $128,000 $420,000 $168,000 $344,000 $184,000 $1,244,000 $1,296,250 $52,250

Journal entry	DR	CR