Question
Success Sisters is debating the use of direct labor (DL) cost or direct labor (DL) hours as the cost allocation base for allocating manufacturing overhead
Success Sisters is debating the use of direct labor (DL) cost or direct labor (DL) hours as the cost allocation base for allocating manufacturing overhead costs. The following information is available for the year ended December 31, 2019:
Estimated/budgeted direct labor cost | $437,500 |
Actual direct labor cost | $447,000 |
Estimated/budgeted manufacturing overhead costs | $350,000 |
Actual manufacturing overhead (MOH) costs | $338,000 |
Estimated/budgeted direct labor hours | 25,000 |
Actual direct labor hours | 24,200 |
Determine the following:
a) Predetermined MOH rate using direct labor cost as the allocation base
b) Predetermined MOH rate using direct labor hours as the allocation base
c) Allocated MOH based on direct labor cost
d) Allocated MOH based on direct labor hours
e) Using direct labor hours as the allocation base, was MOH under- or over-applied when DL hours are used as the MOH costs allocation base and by how much amount?
f) Using direct labor hours as the allocation base, prepare the journal entry to close out the over- or under-applied MOH worked out in e.
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