Pure Decorating uses a job order cost system to collect the costs of its interio

Question

Pure Decorating uses a job order cost system to collect the costs of its interior decorating business. Each client’s consultation is treated as a separate job. Overhead is applied to each job based on the number of decorator hours incurred. Listed below are data for the current year. Estimated overhead $768,780 Actual overhead $737,850 Estimated decorator hours 42,710 Actual decorator hours 40,180 The company uses Operating Overhead in place of Manufacturing Overhead.

. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation

Debit

Credit

Applied overhead

Account Titles and Explanation

Debit

Credit

Applied overhead

Explanation / Answer

Predetermined Overhead rate = 768780 / 42710 = $ 18 per hour

Applied Overhead = 40180 * 18 = $ 723240

Journal entry to recored Applied Overhead:-

W.I.P A/c Dr.

To Operating Overhead A/c

723240

723240

Actual Overhead   = $ 737850

Applied Overhead = $ 723240

Underapplied = 737850 - 723240 = $ 14610

Journal entry to recored Under-applied portion of Overhead:-

Cost of Goods sold A/c Dr.

To Operating Overhead A/c

14610

14610

Particulars Debit (Dr.) Credit (Cr.)

W.I.P A/c Dr.

To Operating Overhead A/c

723240

723240

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