Bramble Company applies manufacturing overhead to jobs on the basis of machine hours used. Overhead costs are estimated to total $297,124 for the year, and machine usage is estimated at 125,900 hours. For the year, $377,552 of overhead costs are incurred and 130,700 hours are used.

Compute the manufacturing overhead rate for the year.

What is the amount of under- or overapplied overhead at December 31?

Prepare the adjusting entry to assign the under- or overapplied overhead for the year to cost of goods sold.

Manufacturing overhead rate is $2.36 per machine hour

Under applied overhead is $69,100

Journal Entry

Dr.  Cost of Goods Sold             $69,100

Cr.   Manufacturing overhead   $69,100

Explanation:

Manufacturing overhead rate is calculated by dividing the Estimated overhead with the estimated level of activity on which the overhead is allocated. It is a rate at which the overhead is allocated to a product / project/ department.

Manufacturing overhead rate = Estimated overhead / Estimated activity

Manufacturing overhead rate = Estimated overhead / Estimated machine hours

Manufacturing overhead rate = $297,124 / 125,900 machine hours

Manufacturing overhead rate = $2.36 per machine hour.

If the applied manufacturing cost is more than the actual cost incurred cost, then overheads are over-applied and If applied overhead cost is less than the actual cost then it is under-applied.

Applied over head =  Manufacturing overhead rate x Actual machine hours = $2.36 x 130,700 = $308,452

Under applied overhead = Actual Overhead - Applied Overhead = $377,552 - $308,452 = $69,100

As the actual overhead value is more than the applied, so the overhead is under applied.

Journal Entry for Under applied overhead.

Dr.  Cost of Goods Sold             $69,100

Cr.   Manufacturing overhead   $69,100

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