Guilford Inc. manufactures quality clothing for children. The following data relate to the activities for the month of August, 2014:
Manufacturing overhead costs incurred:
Property taxes................................................ $ 1,600
Utilities, factory............................................. 2,600
Depreciation, factory....................................... 14,000
Insurance, factory........................................... 2,500
Indirect labor................................................ 5,100
Other costs incurred:
Purchase of raw materials................................. $18,000
Direct labor cost............................................ 200
Selling and administrative costs.......................... 99,000
Inventories:
Raw materials, beginning................................. $5,000
Raw materials, ending..................................... 4,400
Work in process, beginning............................... 3,500
Work in process, ending................................... 4,500
The company uses a predetermined overhead rate to charge overhead cost to production. The overhead rate for the current month was based on estimated overhead costs of $24,000, and 6,000 machine hours. Actual machine hours are 5,000; sales were $300,000.
Required:
1. Compute the predetermined overhead rate.
2. Compute the amount of applied overhead cost for the month of August.
3. Prepare the journal entry for the under-applied or over-applied overhead cost. The under- or over-applied overhead is closed to the cost of goods sold account.