Total manufacturing-related costs incurred by Alloy Company in October for all its jobs is as follows: $$\begin{array} { l r }
\text { Direct materials } & \$ 1000 \
\text { Insurance of factory building } & 160 \
\text { Direct labor } & 1,400 \
\text { Property taxes-factory building } & 700 \
\text { Other factory overhead costs } & 1,550 \
\text { Factory overhead applied } & 1,950
\end{array}$$ Assuming Alloy uses a normal costing system and applies overhead based on a predetermined rate, what is the credit to Overhead Control to close the account at the end of the year?

Question

Total manufacturing-related costs incurred by Alloy Company in October for all its jobs is as follows: $$\begin{array} { l r } 
\text { Direct materials } & \$ 1000 \
\text { Insurance of factory building } & 160 \
\text { Direct labor } & 1,400 \
\text { Property taxes-factory building } & 700 \
\text { Other factory overhead costs } & 1,550 \
\text { Factory overhead applied } & 1,950
\end{array}$$ Assuming Alloy uses a normal costing system and applies overhead based on a predetermined rate, what is the credit to Overhead Control to close the account at the end of the year?

Quizplus · Accepted Answer

The credit to Overhead Control to close the account is the difference between the Factory Overhead Applied ($1,950) and the sum of the actual overhead costs (Insurance of factory building $160 + Property taxes-factory building $700 + Other factory overhead costs $1,550 = $2,410). The difference is $1,950 - $2,410 = -$460, indicating an overhead underapplied by $460. To close the account, a credit of $460 is needed to balance the underapplied overhead.

Total Manufacturing-Related Costs Incurred by Alloy Company in October for All