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)
