Question

At the beginning of the year, Infodeo established its predetermined overhead rate for movies produced during the year by using the following cost predictions: overhead costs, $1,680,000, and direct labor costs, $480,000. At year-end, the company’s records show that actual overhead costs for the year are $1,652,000. Actual direct labor costs 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
a. Determine the predetermined overhead rate for the year 2017.
b. Determine whether overhead is overapplied or underapplied during the year.
c. Prepare the adjusting entry to allocate any over- or underapplied overhead to Cost of Goods Sold.

Answer 1

Answer:

A.) Predetermined overhead rate = 350%

B.) Overhead was overapplied by $10,500

C.) Overhead account $10,500(Dr.)

Cost of goods sold $10,500(Cr.)

Explanation:

Given the following ;

Predicted overhead cost = $1,680,000

Predicted direct labor cost = $480,000

Actual overhead = $1,652,000

Total actual direct labor cost = $475,000

a.) Predetermined overhead rate =

Predicted overhead cost based on predicted predicted direct labor cost

(Predicted overhead cost / predicted direct labor cost) × 100

($1,680,000÷$480,000)×100

3.5 ×100 = 350%

b.) Whether overhead is over applied or underapplied

Overhead is over applied when predetermined or applied overhead is greater than actual overhead while overhead is underapplied when applied overhead is lesser than actual overhead.

Applied overhead = predetermined rate × total actual direct labor cost

Applied overhead = 3.5 × $475,000 = $1,662,500

Actual overhead = $1,652,000

Applied overhead-Actual overhead

$1,662,500 - $1,652,000 = $10,500

Applied overhead > Actual overhead (overhead was over applied by $10,500)

c.) adjusting entry to allocate overapplied overhead to cost of goods sold

The overapplied overhead is added to the cost of goods sold

Overhead $10,500(Dr.)

Cost of goods sold $10,500(Cr.)

Answer 2

Answer:

Part a. Determine the predetermined overhead rate for the year 2017.

Predetermined Overhead Rate is 350% of direct labor costs

Part b. Determine whether overhead is overapplied or underapplied during the year.

Amount of Overapplication of Overheads is $10,500

Part c. Prepare the adjusting entry to allocate any over- or underapplied overhead to Cost of Goods Sold.

Overhead Account $10,500 (debit)

Cost of Goods Sold $10.500 (credit)

Explanation:

Part a. Determine the predetermined overhead rate for the year 2017.

Predetermined Overhead Rate = Budgeted Total Overheads / Budgeted Activity

                                                    = $1,680,000/ $480,000

                                                    =  350% of direct labor costs

Part b. Determine whether overhead is overapplied or underapplied during the year.

We do a comparison of Overheads Applied against Actual Overheads

Applied Overheads = Predetermined Overhead Rate × Actual Direct Labor Costs

                                 = 350 % × $ 475,000

                                 =  $1,662,500

Actual Overheads = $1,652,000 (given)

Applied Overheads > Actual Overheads, therefore the Overheads are Overapplied

Amount of Overapplication is $1,662,500 - $1,652,000 = $10,500

Part c. Prepare the adjusting entry to allocate any over- or underapplied overhead to Cost of Goods Sold.

The Amount of Overapplied overheads reduces the cost of sales as follows;

Overhead Account $10,500 (debit)

Cost of Goods Sold $10.500 (credit)