Predetermined Overhead Rate Stanley Company produces specialized safety devices. For the year, manufacturing overhead costs are estimated to be $160,000. Estimated machine usage is 40,000 hours. The company assigns overhead based on machine hours. Job No. 302 used 2,000 machine hours.

Question

Predetermined Overhead Rate

Stanley Company produces specialized safety devices. For the year, manufacturing overhead costs are estimated to be $160,000. Estimated machine usage is 40,000 hours. The company assigns overhead based on machine hours. Job No. 302 used 2,000 machine hours.

Compute the predetermined overhead rate, determine the amount of overhead to apply to Job No. 302, and prepare the entry to apply overhead to Job No. 302 on March 31.

Accepted Answer

Predetermined overhead rate = $160,000 ÷ 40,000 hours = $4.00 per machine hour
Amount of overhead applied to Job No. 302 = 2,000 hours × $4.00 = $8,000
The entry to record the application of overhead to Job No. 302 on March 31 is:

Work in Process Inventory	8,000
Manufacturing Overhead		8,000
(To assign overhead to jobs)

ACTION PLAN
• The predetermined overhead rate is estimated annual overhead cost divided by estimated annual operating activity.
• Assignment of overhead to jobs is determined by multiplying the actual activity base used by the predetermined overhead rate.
• The entry to record the assignment of overhead transfers an amount out of Manufacturing Overhead into Work in Process Inventory.

Related exercise material: BE2.6, BE2.7, DO IT! 2.3, E2.5, and E2.6.

Question 2.DI.3: Predetermined Overhead Rate Stanley Company produces special...

This Question has been Answered.

Already have an account?

Login

Related Answered Questions