The predetermined overhead allocation rate for Millay Manufacturing is based on estimated direct labor costs of $350,000 and estimated factory overhead of $770,000. Actual costs incurred were: Direct materials $475,000 Direct labor 347,000 Indirect materials 78,000 Indirect labor 143,500 Sales commissions 150,000 Factory depreciation 260,000 Property taxes, factory 35,000 Factory utilities 65,000 Advertising 62,500 Factory supervision 185,000 a. Calculate the predetermined overhead rate and calculate the overhead applied during the year. b. Determine the amount of over- or underapplied overhead and prepare the journal entry to eliminate the over- or underapplied overhead assuming that it is not material in amount. Direct materials $475,000 Direct labor 347,000 Indirect materials 78,000 Indirect labor 143,500 Sales commissions 150,000 Factory depreciation 260,000 Property taxes, factory 35,000 Factory utilities 65,000 Advertising 62,500 Factory supervision 185,000 Solution a)predetermined overhead rate = estimated overhead /estimated direct labor cost = 770,000 / 350,000 = $ 2.2 per direct labor cost overhead applied = actual direct labor cost *predetermined overhead rate = 347,000 * 2.20 = 763,400 b)Actual overhead = 78000+143500+260000+35000+65000+185000 = 766500 **Advertising and sales commission is not related to manufacturing so it is not included in factory overhead. overhead underapplied /(overapplied) =actual -applied = 766,500 - 763,400 = $ 3100 underapplied Cost of goods sold debit 3100 Manufacturing overhead credit 3100 [being overhead underapplied recorded].

1. The predetermined overhead allocation rate for Millay Manufacturing is based on estimated
direct labor costs of $350,000 and estimated factory overhead of $770,000. Actual costs incurred
were:
Direct materials
$475,000
Direct labor
347,000
Indirect materials
78,000
Indirect labor
143,500
Sales commissions
150,000
Factory depreciation
260,000
Property taxes, factory
35,000
Factory utilities
65,000
Advertising
62,500
Factory supervision
185,000
a. Calculate the predetermined overhead rate and calculate the overhead applied during the year.
b. Determine the amount of over- or underapplied overhead and prepare the journal entry to
eliminate the over- or underapplied overhead assuming that it is not material in amount.
Direct materials
$475,000
Direct labor
347,000
Indirect materials
78,000
Indirect labor
143,500
Sales commissions

2. 150,000
Factory depreciation
260,000
Property taxes, factory
35,000
Factory utilities
65,000
Advertising
62,500
Factory supervision
185,000
Solution
a)predetermined overhead rate = estimated overhead /estimated direct labor cost
= 770,000 / 350,000
= $ 2.2 per direct labor cost
overhead applied = actual direct labor cost *predetermined overhead rate
= 347,000 * 2.20
= 763,400
b)Actual overhead = 78000+143500+260000+35000+65000+185000 = 766500
**Advertising and sales commission is not related to manufacturing so it is not included in
factory overhead.
overhead underapplied /(overapplied) =actual -applied
= 766,500 - 763,400
= $ 3100 underapplied
Cost of goods sold debit 3100
Manufacturing overhead credit 3100
[being overhead underapplied recorded]