Davidson\'s Dolls had the following information in its work in process inventory

Question

Davidson's Dolls had the following information in its work in process inventory account for June 2010:
work in process inventory
beginning balance 10,000 transferred out 335,000
materials added 150,000
labor(5,000 DLHs) 90,000
applied overhead 120,000
ending balance 35,000

All workers are paid the same rate per hour. Factory overhead is applied to work in process inventory on the basis of direct labor hours. The only work left in process at then end of the month had a total of 2,860 direct labor hours accumulated to date.
a. what is the total predetermined OH rate per direct labor hour?

b. if actual total overhead for June is $121,500, what is the amount of underapplied or overapplied overhead?
c. given your answer to part (b), how would you recommend the over- or underapplied overhead be closed?

Explanation / Answer

a) Predetermined overhead rate= applied overhead/actual DLH=120,000/5000=$24/DLH b)Actual Overhead - Applied Overhead=$121,500-$120,000=$1,500----Overheadis underapplied c) $335,000-$35,000=$300,000 - Total production costs for June. So, under applied overhead is just a 0.5% of total production costs - it very small and must be closed to CGS. CGS 1500 MOH 1500

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