Jimmy\'s Golf Company uses machine hours to determine its predetermined overhead

Question

Jimmy's Golf Company uses machine hours to determine its predetermined overhead rates. At the beginning of the year, Jimmy's Cookies estimated its 2013 machine hours to be 10,000 hours and estimated its 2013 manufacturing overhead to be $1,500,000.

Actual 2013 machine hours were 11,000 hours and actual 2013 manufacturing overhead was $1,820,000.

At the end of the year, JGC, made an accounting entry to include the over applied or under applied overhead COGS. What impact did that entry have on JGC'S net operating income?

Reduce net operating by $200,000

Reduce net operating by $50,000

Reduce net operating by $170,000

Increase net operating by $170,000

Increase net operating by $50,000

Explanation / Answer

Predetermined overhead rate = 1500000/10000 = $150 Overhead applied = 11000*150= 1650000 Reduce net operating by $200,000(1850000-1650000)

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