In December 2016, Custom Mfg. established its predetermined overhead rate for jo
ID: 2430001 • Letter: I
Question
In December 2016, Custom Mfg. established its predetermined overhead rate for jobs produced during 2017 by using the following cost predictions: overhead costs, $880,000, and direct materials costs, $400,000. At year-end 2017, the company's records show that actual overhead costs for the year are $1,127,300. 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 $390,000 71,000 47,000 $508,000Explanation / Answer
Predetermined Overhead rate = Estimated Overhead Costs/Estimated Direct Material Costs
= $880,000/400,000 = 2.20 or 220% of material costs
Applied Overhead Costs = Actual Direct Materials Costs*220%
= $508,000*220% = $1,117,600
Calculation of Overapplied or Underapplied Overheads (Amounts in $)
Factory Overhead Actual Overhead 1,127,300 1,117,600 Applied Overhead Underapplied Overhead (Bal fig) ($1,127,300-$1,117,600) 9,700