Chapter 19, Problem E19.19E

To determine

Direct Labor Cost: Direct Labor Cost is a direct manufacturing cost that is incurred in the production of goods or provision of services.

Manufacturing Overhead: Manufacturing overhead refers to indirect costs that are incurred in the factory, other than direct materials costs and direct labor costs. Some of the examples of manufacturing overhead are depreciation on manufacturing plant and equipment, property taxes on plant, plant janitor’s wages etc.

Predetermined Overhead Allocation Rate: A predetermined overhead allocation rate is used to assign the indirect manufacturing overhead costs to the units of production. It is computed by dividing the estimated overhead cost by an estimated quantity of allocation base.

Allocation Base: An allocation base is used to allocate the indirect overhead costs. For example: Direct labor hours, machine hours, direct labor cost etc.

The manufacturing overhead is said to be overallocated when allocated manufacturing overhead costs are more than the actual manufacturing overhead costs. In the Manufacturing Overhead T-account, if the total amount of credit side is more than the total amount of debit side, then the manufacturing overhead is said to be overallocated and the T-account has a credit closing balance.

The manufacturing overhead is said to be underallocated when actual manufacturing overhead costs are more than the allocated manufacturing overhead costs. In the Manufacturing Overhead T-account, if the total amount of debit side is more than the total amount of credit side, then the manufacturing overhead is said to be underallocated and its T-account has a debit closing balance.

1.

To Compute: The predetermined overhead allocation rate per direct labor dollar.

To determine

2.

To Prepare: The journal entry to allocate overhead costs for the year.

To determine

3.

The amount of underallocated or overallocated manufacturing overhead by using a T-account.

To determine

4.

To Prepare: The journal entry to adjust for the underallocated or overallocated manufacturing overhead.