Question: Rivera Company applies manufacturing overhead to jobs on the basis of machine hours used. Overhead costs are expected (budgeted) to total $600,000 for the year, and machine usage is estimated at 40,000 hours.
For the year, $601,000 of overhead costs are incurred and 39,800 hours are used.
Instructions: (a) Compute the predetermined manufacturing overhead rate that was calculated at the beginning of the year.
(b) Compute the total amount of overhead that was actually applied during the year (using the predetermined rate that you calculated in a above), keeping in mind that 39,800 machine hours were used.
(c) Compare the amount of overhead that was applied during the year with the actual incurred overhead costs. What is the amount of under - or overapplied overhead at December 31? (please identify both the amount and that it was "under-applied" or "over-applied")
(d) Assuming the under - or overapplied overhead for the year is not allocated to inventory accounts, prepare the adjusting entry to assign the amount to cost of goods sold.