Question

At the beginning of the year, Custom Mfg. established its predetermined overhead rate by using the following cost predictions: overhead costs, $360,000, and direct materials costs, $200,000. At year-end, the company’s records show that actual overhead costs for the year are $937,800. Actual direct materials cost had been assigned to jobs as follows. Jobs completed and sold $ 380,000 Jobs in finished goods inventory 76,000 Jobs in work in process inventory 60,000 Total actual direct materials cost $ 516,000 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

1) Predetermine overhead rate = Estimated overhead/estimated direct material = 360000/200000 = 180% of direct material

2&3) T account

Manufacturing overhead
Actual overhead	937800	Applied overhead (516000*1.8)	928800
Balance	9000

Under applied overhead = 9000

4) Adjusting entry

Date	account and explanation	Debit	Credit
	Cost of goods sold	9000
	Manufacturing overhead		9000
	(To record under applied overhead)