A company's overhead rate is based on direct labor hours. Estimated overhead and direct labor hours are $110,000 and 125,000, respectively. During the year, actual overhead was $96,000 and actual direct labor hours were 120,000. At year end, the following balances are available before the proration of under or over applied overhead: Raw materials inventory 20,000 Work-in-process inventory 34,000 Finished goods inventory 32,000 Cost of goods sold 34,000 Calculate the balance in cost of goods sold after prorating the under or over applied overhead.

Calculation of the balance in cost of goods sold after prorating the overapplied overhead:

Cost of goods sold =        $34,000

Overapplied overhead =    (9,600)

Cost of goods sold =       $24,400

Explanation:

a) Data and calculations:

Estimated overhead = $110,000

Estimated direct labor hours = 125,000

Actual overhead = $96,000

Actual labor hours = 120,000

Overhead absorption rate = $110,000/125,000 = $0.88

Actual overhead applied = $105,600 (120,000 x $0.88)

b) Ending balances:

Raw materials inventory 20,000

Work-in-process inventory 34,000

Finished goods inventory 32,000

Cost of goods sold 34,000

c) Applied overhead    $105,600

 Actual overhead            96,000

Overapplied overhead      9,600

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