(Underapplied or overapplied overhead) At the end of 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
Total 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 the 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 the end of the year.
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