Question

At the beginning of the year, Custom Mfg. established its predetermined overhead rate by using the following cost predictions: overhead costs, $1,160,000, and direct materials costs, $400,000. At year-end, the company's records show that actual overhead costs for the year are $1,494,300. 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 $370,000 85,000 57.000 $512,000 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.

Answer 1

Determine the predetermined overhead rate.

Choose numerator	/	choose denominator	=	Overhead rate
Estimated overhead costs	/	Estimated direct materials cost	=	Overhead rate
$1,160,000	/	$400,000	=	290%

Determine the overhead costs incurred and the amount applied during the year using the predetermined overhead rate and determine whether overhead is over applied or under applied.

Factory overhead:

Actual overhead	$1,494,300	$1,484,800	Applied Overhead
Under applied Overhead	$9,500

Journal entry to allocate underapplied / Overapplied overhead

Date	Particulars	Debit	Credit
Dec. 31	Cost of goods sold	$9,500
	Factory overhead		$9,500

____×____

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