Question

Exercise 2-15 Factory overhead computed, applied and adjusted P3 P4 In December 2016. Custom Mfe, established its predetermined overhead rate for jobs produced during 2017 by using the following cost predictions: overhead costs, $750,000, and direct materials coss. S625.000. At year-end 2017, the company's records show that actual overhead costs for the year re $830,000. Actual direct materials cost had been assigned to jobs as follows. Jobs completed and sold............. Jobs in finished goods inventory.......... Jobs in work in process inventory..... Total actual direct materials cost. $513.750 102,750 68,500 $685,000 1. Determine the predetermined overhead rate, using predicted direct materials costs, for 2017 2. Set up a T-account for Factory Overhead and enter the overhead costs incurred and the amounts ap plied to jobs during the year using the predetermined overhead rate. 3. Determine whether overhead is overapplied or underapplied (and the amount) during the year. 4. Prepare the adjusting entry to allocate any over- or underapplied overhead to Cost of Goods Sold. Check (3) $8.000 underapplied

1 and 2

Answer 1

Solution 1:

Predetermined overhead rate = $750000/ $625000 = 120%

Solution 2:

Factory overhead account:

Actual overhead	830,000	822,000	Overhead applied ($685000*120%)
Under applied overhead	8,000

Solution 3:

Overhead is underapplied by $8,000

Solution 4:

Account title	Debit	Credit
Cost of goods sold	8,000
Factory Overhead		8,000