Question

In December 2016, Custom Mfg. established its predetermined overhead rate for jobs produced during 2017 by using the following cost predictions: overhead costs, $750,000, and direct materials costs, $625,000. At year-end 2017, the company’s records show that actual overhead costs for the year are $830,000. Actual direct material cost had been assigned to jobs as follows.

Jobs completed and sold	$	513,750
Jobs in finished goods inventory		102,750
Jobs in work in process inventory		68,500
Total actual direct materials cost	$	685,000

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.

Journal entry worksheet Record entry to allocate underapplied /overapplied overhead. Note: Enter debits before credits. Date General Journal Credit Debit 9,200 Dec 31 Cost of goods sold Factory overhead 9,200 Record entry Clear entry View general journal

Answer 1

a) Overhead rate

estimated overhead	/	Estimated material	=	Overhead rate
750000	/	625000	=	120% of material

b) T account

Actual overhead	830000	822000	Applied overhead (685000*1.2)
Balance	8000

Under applied overhead = $8000

c) Journal entry

Date	account and explanation	Debit	Credit
	Cost of goods sold	8000
	Manufacturing overhead		8000
	(To record under applied overhead)