(Underapplied or overapplied overhead) At year-end 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:
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|
Work in Process Inventory
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Finished Inventory
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Cost of Goods Sold
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Direct material
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$20,000
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$ 80,000
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$120,000
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|
Direct labor
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10,000
|
40,000
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50,000
|
|
Factory overhead
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20,000
|
80,000
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100,000
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|
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$50,000
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$200,000
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$270,000
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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 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 year-end.