Question

Exercise 15-16 Factory overhead computed, applied, and adjusted LO P3, P4 In December 2016, Infodeo established its predetermined overhead rate for movies produced during 2017 by using the following cost predictions: overhead costs, $1,680,000, and direct labor costs, $480,000. At year-end 2017, the company’s records show that actual overhead costs for the year are $1,652,000. Actual direct labor cost had been assigned to jobs as follows.

Movies completed and released $ 425,000

Movies still in production 50,000

Total actual direct labor cost $ 475,000

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.

Answer 1

As there is no other Basis for allocation of OverHead given We should Use per $1 of Direct Labour Cost.ie,

1. Determine the predetermined overhead rate for 2017.

Predicted Overhead Cost =$1,680,000

Predicted Labour Cost =$480,000

Overhead Rate = =3.5 / Direct Labour Cost.

2&3)

Overhead actually incurred =1,652,000

Amount OH Applied using Predetermined Rate (of 3.5) = Actual Labour Cost * 3.5

Where, Actual Labour Cost because Overhead allocated based on per $1 of labour cost

............................................................................................=475,000 * 3.5 =1,662,500

Analyse under or Over Applied OH

	OH Applied at predicted rate of 3.5	Actual Overhead
	1,662,500	1,652,000
OH Overapplied by (1,662,500-1,652,000)=10,500

4) Correcting Entry For Over Applied to Cost of Goods sold will be:

	Debit	Credit
Manufacturing OH	10,500
Cost Of goods Sold		10,500