Question

In December 2016, Custom Mfg. established its predetermined overhead rate for jobs produced during 2017 by using the following cost predictions: overhead costs, $1,260,000, and direct materials costs, $600,000. At year-end 2017, the company's records show that actual overhead costs for the year are $1,060,300. Actual direct material 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 82,000 49,000 $501,000 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

1) Overhead rate

Estimated overhead	/	Estimated direct material	=	Overhead rate
1260000	/	600000	=	210% of direct material used

T account

Actual overhead	1060300	1052100	Applied overhead (501000*2.1)
Balance	8200

Adjusting entry

Date	account and explanation	Debit	Credit
	Cost of goods sold	8200
	Manufacturing overhead		8200
	(To record under applied overhead)