Underapplied or overapplied overhead

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(Underapplied or overapplied overhead) At year-end 2013, Dub's Wind Generator Co. had a $40,000 debit balance in its Manufacturing Overhead Control account. Overhead is applied to products based on direct labor cost. Relevant account balance information at year-end follows:

 

Work in Process Inventory

Finished Inventory

Cost of Goods Sold

Direct material

$20,000

$ 80,000

$120,000

Direct labor

10,000

40,000

50,000

Factory overhead

20,000

80,000

100,000

 

$50,000

$200,000

$270,000

a. What predetermined OH rate was used during the year?

b. Provide arguments to be used for deciding whether to prorate the balance in the overhead account at year-end.

c. Prorate the overhead account balance based on the relative balances of the appropri­ate accounts.

d. Identify some possible reasons that the company had a debit balance in the overhead account at year-end.

Reference no: EM13840768

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