The predetermined overhead rate for Foster, Inc., is based on estimated direct labor costs of $400,000 and estimated factory overhead of $500,000. Actual costs incurred were:Direct materials…………………………….. $240,000Direct labor…………………………………..410,000Indirect materials…………………………… 55,000Indirect labor……………………………….. 125,000Sales commissions…………………………. 55,000Factory depreciation………………………… 170,000Property taxes, factory……………………... 15,000Factory utilities…………………………….. 35,000Advertising………………………………..... 62,500Factory equipment rental…………………… 110,000(a) Calculate the predetermined
overhead rate and calculate the overhead applied during the year.(b) Prepare the journal entry to eliminate the over- or underapplied overhead, assuming that it is not material in amount.
What will be an ideal response?
(a) Predetermined overhead rate = $500,000/$400,000 = 125% of direct labor cost
Overhead applied = $410,000 * 125% = $512,500
(b)
| Actual overhead: | ? |
| Indirect materials……………………………… | $ 55,000 |
| Indirect labor……………………………..…… ? | 125,000 |
| Factory depreciation…………………………… | 170,000 |
| Property taxes, factory………………………… ? | 15,000 |
| Factory utilities……………………………..… | 35,000 |
| Factory equipment rental……………………… | 110,000 |
| Total actual overhead………………………….. | $510,000 |
| Overhead applied…………………………….… | 512,500 |
| Overapplied overhead…………………………… | $ 2,500 |
| Factory Overhead…………………………………………… | 2,500 | ? |
| Cost of Goods Sold……………………………………… | ? | 2,500 |
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