Fundamental Accounting Principles 22th Edition by John Wild ,Ken Shaw,Barbara Chiappetta

Exercise 55

In December 2014, Custom Mfg. established its predetermined overhead rate for jobs produced during 2015 by using the following cost predictions: overhead costs, $750,000, and direct labor costs, $625,000. At year-end 2015, the company's records show that actual overhead costs for the year are $830,000. Actual direct labor cost had been assigned to jobs as follows.

1. Determine the predetermined overhead rate for 2015.
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.