Lavender Company Has Decided to Use a Predetermined Rate to Assign

Essay

Lavender Company has decided to use a predetermined rate to assign factory overhead to production. The following predictions have been made for 2016:
Required:
a. Compute the predetermined factory overhead rate under three different bases: (1) direct labor hours, (2) direct labor costs, and (3) machine hours.
b. Assume that actual factory overhead was $152,500 and that Lavender elected to apply factory overhead to Work in Process based on direct labor hours. If actual direct labor was 42,000 hours for 2016, was factory overhead overapplied or underapplied? By how much?
c. Lavender Company follows the policy of writing off any under- or overapplied factory overhead balance to Cost of Goods Sold at the end of the year. Make the entry necessary at the end of 2016 to dispose of the factory overhead balance determined in Part (b).