Question

In December 2016, Custom Mfg. established its predetermined overhead rate for jobs produced during 2017 by using the following cost predictions: overhead costs, $460,000, and direct materials costs, $200,000. At year-end 2017, the company’s records show that actual overhead costs for the year are $1,271,100. Actual direct material cost had been assigned to jobs as follows.
Jobs completed and sold $ 420,000
Jobs in finished goods inventory 76,000
Jobs in work in process inventory 53,000
Total actual direct materials cost $ 549,000

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.

Complete this question by entering your answers in the tabs below.

Req 1

Req 2 and 3

Req 4

Determine the predetermined overhead rate for 2017.

Overhead Rate
Choose Numerator: / Choose Denominator:
Complete this question by entering your answers in the tabs below.

Req 1

Req 2 and 3

Req 4

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.

Factory Overhead
Actual overhead
Applied overhead
Underapplied overhead 0 = Overhead Rate
Estimated overhead costs / Estimated direct material costs = Overhead rate
/ = 0
Prepare the adjusting entry to allocate any over- or underapplied overhead to Cost of Goods Sold.

No Date General Journal Debit Credit
1 Dec 31 Cost of goods sold
1 Factory overhead

Answer 1

Answer:

1. Predetermined Overhead Rate  2.3

2. Under applied Overhead $ 8300

3.Cost of goods sold     $ 8,300 Dr

Factory overhead                          $ 8300 Cr

Explanation:

As direct labor is not given overhead rate is calculated on the basis of direct material costs

Predetermined  Overhead Rate= Estimated Overheads/ Estimated Direct Materials Cost

1. Predetermined Overhead Rate= $460,000/ $200,000= 2.3

Now we multiply the predetermined overhead rate with the actual material costs to get the aplpied overhead. And the difference is found.

Actual Overheads  $1,271,100

Applied Overheads = 2.3 * $ 549,000 = $ 1262700

2. Under applied Overhead = Actual Overhead- Applied Overhead

                                       = $1,271,100-$ 1262700= $ 8300

The under applied overhead is debited to Cost Of Goods Sold.

No       Date          General Journal           Debit           Credit

1          Dec 31        Cost of goods sold     $ 8,300 Dr

1                               Factory overhead                          $ 8300 Cr