Answer:
1) $ 11 per hour
2) Work in Process (Debit) 660,000
Manufacturing overhead clearing (credit) 660,000
3) Manufacturing overhead is over-allocated by $ 69,500
4) Manufacturing overhead clearing (debit) 69,500
Cost of good sold 69,500
Yes, the entry decreases the cost of goods sold as the actual overhead expenses are less than the applied over head cots.
Explanation:
1) Overhead rate = Expected manufacturing overhead / Estimated number of machine hours
Overhead rate: 880,000 / 80,000 = $ 11 / machine hour
2) Journal entry is recorded based on every hour worked during the period. Since 60,000 hours are worked so total of 660,000 manufacturing overheads are recorded using following entry.
Work in Process (Debit) 660,000
Manufacturing overhead clearing (credit) 660,000
3) Under-application results when actual manufacturing overheads are higher than expectation and vice versa. In question provided total hours were 60,000 instead of 80,000 budgeted hours, further actual cost amounted to $590,500 (530,000 for depreciation, 36,500 for property taxes, 24,000 plant janitor), thus there is over application by 660,000 - 590,500 = 69,500.
Note: Sales salaries and delivery wages are not included in overhead expenses as they are not part of manufacturing overheads.
4) Manufacturing overhead clearing (debit) 69,500
Cost of good sold 69,500
As there is over application of overhead expenses so there is a credit in manufacturing overhead account, so in order to clear the clearing account balance is transferred to cost of goods sold resulting in net profit to bottom line.
