In December 2016, Custom Mfg. established its predetermined overhead rate for jo
ID: 2558173 • 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, $450,000, and direct materials costs, $300,000. At year-end 2017, the company's records show that actual overhead costs for the year are $818,200. 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 inventory57,000 Total actual direct materials cost $540,000 $400,000 83,000Explanation / Answer
Req 1; Pre-determined OH rate: Estimated OH/ Direct Material cost *100 450,000 /300,000 *100 = 150% of direct material cost Formula Estimated Overheads / Estimated Direct material cost = OH rate 450,000 / 300,000 = 150% of direct material cost Req 2&3 Under/Over-applied Overheads: 818200 Actual Overheads applied Overheads Applied 540,000 * 150% 810000 UNDER-APPLIED OVERHEADS 8200 Req 4: Cost of Goods sold Dr. 8200 Manufacturing Overheads 8200