Question

At the beginning of the year, Custom Mfg. established its predetermined overhead rate by using the following cost predictions: overhead costs, $1,200,000, and direct materials costs, $400,000. At year-end, the company’s records show that actual overhead costs for the year are $1,532,400. Actual direct materials cost had been assigned to jobs as follows.

Jobs completed and sold	$	380,000
Jobs in finished goods inventory		80,000
Jobs in work in process inventory		48,000
Total actual direct materials cost	$	508,000

1. Determine the predetermined overhead rate.
2&3. Enter 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.
4. Prepare the adjusting entry to allocate any over- or underapplied overhead to Cost of Goods Sold.

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.

Answer 1

Dear Students

1) Predetermined overhead rate = Estimated Overhead / Estimated direct material cost

                                             = 1,200,000 / 400,000

                                             = $ 3 per $ direct material cost

2) & 3)

Particulars	Direct Material actual incurred	Applied overhead
Jobs completed and sold	380,000	380,000 * 3 = 1140000
Jobs in finished goods inventory	80,000	80,000 * 3 = 240000
Jobs in work in process inventory	48,000	48,000 * 3 = 144000
	Overhead Applied	1,524,000
Less:	Overhead incurred	(1,532,400)
	Less Applied	(8,400)

Underapplied Overhead = (8,400)

4) Adjusting entry

Cost of Good Sold   Dr                       8,400

      To Overhead A/c                                   8,400

(Being overhead underapplied entry passed)

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