4OH Apllied w solution - accumulated in the OH Control...

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Here is a good one: Try it 1. MelissaCo uses a job order costing system and applies overhead to work in process based on observed machine hours. During the period, MelissaCo incurs actual overhead costs amounting to $1,200,000. At the end of the period, MelissaCo determines that she has OVER APPLIED Overhead by $100,000. If the MelissaCo’s Overhead application rate is $25 per Machine hour, how many Machine Hours must have been observed in production during the year?? In this problem, one must recognize the relationship between three OH numbers: Estimated Overhead Cost Actual Overhead incurred (Control) Applied OH Remember that Estimated Overhead is determined at the beginning of the period and is used (with the estimated operating activity base) to determine the OH Application rate. As the cost driver behavior is identified, OH is “APPLIED” (debited to WIP and credited to OH Applied). During the period, “actual” OH costs incurred are
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Unformatted text preview: accumulated in the OH Control account. At the end of the period, we compare the debit balance in the OH Control with the credit balance in the OH Applied accounts. Note that the OH Control balance is an accurate and firm number. The OH Applied is flimsy and based (partly) on estimates. If the OH Applied (credit) balance is greater than the OH Control (debit) balance you are OVER APPLIED. If the OH Applied (credit) balance is less than the OH Control (debit) balance then you are UNDER APPLIED. In this case, Melissa is OVER APPLIED which means the OH Applied credit balance is greater than the OH Control debit balance ($1,200,000) by $100,000. This means we have APPLIED $1,300,000 to the WIP (etc) accounts. If the OH APPLICATION RATE is $25 per machine hour, then we must have observed 52,000 actual Machine Hours worked during the period ($1,300,000 divided by $25 = 52,000)....
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This homework help was uploaded on 04/02/2008 for the course ACCT 201 taught by Professor Blanchard during the Spring '08 term at University of Arizona- Tucson.

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