At the beginning of the year, Custom Mfg. established its
predetermined overhead rate by using the following cost
predictions: overhead costs, $1,080,000, and direct materials
costs, $600,000. At year-end, the company’s records show that
actual overhead costs for the year are $957,800. Actual direct
materials cost had been assigned to jobs as follows.
Jobs completed and sold | $ | 400,000 | |
Jobs in finished goods inventory | 78,000 | ||
Jobs in work in process inventory | 49,000 | ||
Total actual direct materials cost | $ | 527,000 | |
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
Ans. 1 | *Predetermined overhead rate = Budgeted overhead cost / Budgeted Direct materials cost | ||||
$1,080,000 / $600,000 * 100 | |||||
180.00% | |||||
Ans. 2 & 3 | Overhead applied = Actual direct materials cost * Predetermined overhead rate | ||||
$527,000 * 180% | |||||
$948,600 | |||||
Under applied overhead = Actual overhead - Applied overhead | |||||
$957,800 - $948,600 | |||||
$9,200 | |||||
If the applied overhead is less than the Actual overhead | |||||
it means that the overhead is under applied. | |||||
Factory Overhead | |||||
Particulars | Amount | Particulars | Amount | ||
Actual overhead | $957,800 | Applied overhead | $948,600 | ||
Under applied overhead | $9,200 | ||||
$957,800 | $957,800 | ||||
Ans.4 | Journal entry to record the under applied overhead: | ||||
No. | Particulars | Debit | Credit | ||
1 | Cost of goods sold | $9,200 | |||
Manufacturing overhead | $9,200 | ||||
(To record under applied overhead) | |||||
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