Question

In December 2016, Custom Mfg. established its predetermined overhead rate for jobs produced during 2017 by using the following cost predictions: overhead costs, $1,550,000, and direct materials costs, $500,000. At year-end 2017, the company’s records show that actual overhead costs for the year are $1,624,100. Actual direct material cost had been assigned to jobs as follows.

Jobs completed and sold	$	400,000
Jobs in finished goods inventory		70,000
Jobs in work in process inventory		51,000
Total actual direct materials cost	$	521,000

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.

1.

	Overhead Rate Choose Numerator: / Choose Denominator: = Overhead Rate / = Overhead rate / = 0 2&3. Factory Overhead 0 4. Date General Journal Debit Credit Dec 31

Answer 1

		OVERHEAD RATE
		Numerator	divided by	Denominator	Equalto	Overhead Rate
		Predicted overhead cost	divided by	Predicted direct material cost	Equalto	Overhead Rate
		$1,550,000	divided by	$500,000	Equalto	$                                               3.10
				A=B*3.10		B
		Factory Overhead				Direct Material Cost
		Jobs completed and sold	$	$1,240,000		$400,000
		Jobs in finished goods inventory	$	$217,000		$70,000
		Jobs in work in process inventory	$	$158,100		$51,000
		Total Allocated Overhead	$	$1,615,100		$521,000
		Manufacturing Overhead Account
			Debit	Credit
		Actual Overhead cost	$1,624,100
		Applied overhead		$1,615,100
		Underapplied overhead		$9,000	(1624100-1615100)
		Balance	$9,000
	Date	General Journal	Debit	Credit
	31-Dec	Cost of goods sold	$9,000
		Manufacturing overhead		$9,000