Question

In December 2016, Custom Mfg. established its predetermined overhead rate for jobs produced during 2017 by using the following cost predictions: overhead costs, $260,000, and direct materials costs, $100,000. At year-end 2017, the company’s records show that actual overhead costs for the year are $1,310,700. Actual direct material cost had been assigned to jobs as follows.

Jobs completed and sold	$	360,000
Jobs in finished goods inventory		83,000
Jobs in work in process inventory		58,000
Total actual direct materials cost	$	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.

1

Determine the predetermined overhead rate for 2017.

Overhead Rate
Choose Numerator:	/	Choose Denominator:	=	Overhead Rate
	/		=	Overhead rate
	/		=

• 2

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.

Factory Overhead

3Prepare the adjusting entry to allocate any over- or underapplied overhead to Cost of Goods Sold.

Note: Enter debits before credits.

Date	General Journal	Debit	Credit
Dec 31

Answer 1

Solution:

1.)

Overhead rate

Choose Numerator	/	Choose Denominator	=	Overhead Rate
Budgeted Overhead	/	Budgeted materials cost	=	Overhead Rate
$260,000	/	$100,000	=	260%

2.3.)

Factory overhead:

Actual overhead	$1,310,700	Applied overhead	$1,302,600
Under applied overhead	$8,100

Explanation:

Overhead applied to jobs =260% × $501,000 =$1,302,600

Under applied overhead

=$1,310,700 - $1,302,600

=$8,100

4.)

Date	General Journal	Debit	Credit
Dec. 31	Cost of goods sold	$8,100
	Factory overhead		8,100