Problem

In December 2008, Zander Company’s manager estimated next year’s total direct labor cost...

In December 2008, Zander Company’s manager estimated next year’s total direct labor cost assuming 50 persons working an average of 2,000 hours each at an average wage rate of $30 per hour. The manager also estimated the following manufacturing overhead costs for year 2009.

At the end of 2009, records show the company incurred $1,554,900 of actual overhead costs. It completed and sold five jobs with the following direct labor costs: Job 201, $604,000; Job 202, $573,000; Job 203, $318,000; Job 204, $726,000; and Job 205, $324,000. In addition, Job 206 is in process at the end of 2009 and had been charged $27,000 for direct labor. No jobs were in process at the end of 2008.

The company’s predetermined overhead rate is based on direct labor cost.

Required

1. Determine the following.

a. Predetermined overhead rate for year 2009.

b. Total overhead cost applied to each of the six jobs during year 2009.

c. Over- or underapplied overhead at year-end 2009.

2. Assuming that any over- or underapplied overhead is not material, prepare the adjusting entry to allocate any over- or underapplied overhead to Cost of Goods Sold at the end of year 2009.

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