Question

In December 2016, Infodeo established its predetermined overhead rate for movies produced during 2017 by using the following cost predictions: overhead costs, $1,680,000, and direct labor costs, $480,000. At year-end 2017, the company’s records show that actual overhead costs for the year are $1,652,000. Actual direct labor cost had been assigned to jobs as follows. Movies completed and released $ 425,000 Movies still in production 50,000 Total actual direct labor cost $ 475,000 1. Determine the predetermined overhead rate for 2017. 2&3. Enter the overhead costs incurred and the amounts applied during the year using the predetermined overhead rate and determine whether overhead is overapplied or underapplied. 4. Prepare the adjusting entry to allocate any over- or underapplied overhead to Cost of Goods Sold.

Answer 1

Answer:

1.- rate 3.5 dollars

2.- underapplied for 17,500

adjusting entry:

cost of goods sold 17,500 debit

      manufacturing overhead         17,500 credit

Explanation:

$\frac{Cost\: Of \:Manufacturing \:Overhead}{Cost \:Driver}= Overhead \:Rate$

We calculate the predermined overhead rate by dividing the expected overhead cost by the cost driver figure.

1,680,000 / 480,000 = 3.5 dollars

Applied overhead

actual labor hours x rate

475,000 x 3.5 =  1,662,500

actual                 (1,680,000)

underapplied          (17,500)

As the actual cost were higher than our actual cost the overhead is underapplied we need to recognize more overhead cost in our inventory.