Question

At the beginning of the year, Custom Mfg. established its predetermined overhead rate by using the following cost predictions: overhead costs, $840,000, and direct materials costs, $400,000. At year-end, the company’s records show that actual overhead costs for the year are $1,041,000. Actual direct materials cost had been assigned to jobs as follows.Jobs completed and sold $390,000 Jobs in finished goods inventory 83,000 Jobs in work in process inventory 55,000 Total actual direct materials cost $528,000Required:a. Determine the predetermined overhead rate.b. Write the overhead costs incurred and the amounts applied to jobs during the year using the predetermined overhead rate and determine whether overhead is overapplied or underapplied.c. Prepare the adjusting entry to allocate any over- or underapplied overhead to Cost of Goods Sold.

Answer 1

Answer:

a. Determine the predetermined overhead rate.

the predetermined overhead rate = total budgeted overheard costs / total budgeted direct materials used = $840,000 / $400,000 = 2.1 = 210%

b. Write the overhead costs incurred and the amounts applied to jobs during the year using the predetermined overhead rate and determine whether overhead is overapplied or underapplied.

applied overhead costs = actual direct materials x overhead rate = $528,000 x 210% = $1,108,800

over applied overhead = actual overhead - standard overhead = $1,041,000 - $1,108,800 = -$67,800 favorable variance

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

Dr Manufacturing overhead 67,800

    Cr Cost of goods sold 67,800

Explanation:

budget:

overhead costs, $840,000

direct materials costs, $400,000

actual:

overhead costs, $1,041,000

direct materials costs, $528,000