In December 2008, Jens Company established its predetermined overhead rate for j
ID: 2442518 • Letter: I
Question
In December 2008, Jens Company established its predetermined overhead rate for jobs produced during year 2009 by using the following cost predictions: overhead costs, $1,500,000, and direct labor costs, $1,250,000. At year end 2009, the company’s records show that actual overhead costs for the year are $1,660,000. Actual direct labor cost had been assigned to jobs as follows.Jobs completed and sold . . . . . . . . . . . . . . . $1,027,500
Jobs in finished goods inventory . . . . . . . . . 205,500
Jobs in goods in process inventory . . . . . . . 137,000
Total actual direct labor cost . . . . . . . . . . . . $1,370,000
1. Determine the predetermined overhead rate for year 2009.
2. Set up a 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.
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.
Explanation / Answer
1. Determine the predetermined overhead rate for year 2009.
$1,500,000 / $1,250,000 = 120% of Direct labor cost
2. Set up a T-account for Factory Overhead and enter the overhead costs incurred and the amounts
Manufacturing Overhead
_______________________________________________
Cash $1,660,000 WIP Inventory $1,644,000
_______________________________________________
3. Determine whether overhead is overapplied or underapplied (and the amount) during the year.
Overhead Applied $1,644,000
Less: Actual overhead $1,660,000
Overhead under applied $16,000
4. Prepare the adjusting entry to allocate any over- or underapplied overhead to Cost of Goods Sold.
___________________________________________
Cost of goods sold $16,000
Manufacturing Overhead $16,000
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