Question

Exercise 2-15 Factory overhead computed, applied, and adjusted P3 P4 mber 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 $625,000. n costs, At year-end 2017, the company's records show that actual overhead costs for the year are $830.000. Actual direct materials cost had been assigned to jobs as follows. $513,750 102,750 68,500 Total actual direct materials cost.. 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- Check (3) $8,000 underapplled 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.

Answer 1

Answer:

1.The predetermined overhead rate for year 2017.

= Estimated Overhead/Estimated direct material cost*100

= $750,000 / $625,000 = 120% of Direct labor cost

2)T-account for Factory Overhead and enter the overhead costs incurred and the amounts applied to jobs during the year using the predetermined overhead rate.

Factory Overhead
Actual Overhead(Cash)	$830,000	WIP Inventory	$822,000

3) Applied overhead = Actual material cost*predetermine overhead rate

= $685,000*120% =$822,000

Overhead is over-applied or under-applied (and the amount) during the year.

Overhead Applied                             $822,000

Less: Actual overhead                      $830,000

Overhead under applied                     $8,000

4)

Adjusting entry to allocate over- or under applied overhead to Cost of Goods Sold.
	Debit	Credit
Cost of goods sold	$8,000
Manufacturing Overhead		$8,000
(To allocate over- or under applied overhead to Cost of Goods Sold)