Exercise- Underapplied or overapplied overhead
At year-end 2010, Dub's Wind Generator Co. had a $40,000 debit balance in its Manufacturing Overhead Control account. Overhead is applied to products based on direct labor cost. Relevant account balance information at year-end follows:
a. What predetermined OH rate was used during the year?
b. Provide arguments to be used for deciding whether to prorate the balance in the overhead account at year-end.
c. Prorate the overhead account balance based on the relative balances of the appropriate accounts. Round your final answers to the nearest dollar. Do not round any interim calculations prior to each final answer.
d. Identify some possible reasons that the company had a debit balance in the overhead account at year-end.