Answer:
1. The pre-determined overhead rate is 290% of direct material cost
2. The overhead is underapplied for $9,700
3. The adjusting entry to allocate any over- or underapplied overhead to Cost of Goods Sold would be the following:
31 Dec Debit Credit
Cost of goods sold $9,700
Factory overhead $9,700
Explanation:
1. In order to calculate the pre-determined overhead rate for 2017 we have to calculate the following formula:
pre-determined overhead rate=Estimated overhead costs/Estimated direct material costs
pre-determined overhead rate=$1,740,000/$600,000
pre-determined overhead rate=290%
The pre-determined overhead rate is 290% of direct material cost
2. overhead underapplied= $1,497,400-(290%*$513,000)
overhead underapplied=$1,497,400-$1,487,700
overhead underapplied=$9,700
The overhead is underapplied for $9,700
3. The adjusting entry to allocate any over- or underapplied overhead to Cost of Goods Sold would be the following:
To record allocation of underapplied overhead to cost of goods sold
31 Dec Debit Credit
Cost of goods sold $9,700
Factory overhead $9,700
