Response to the following problem:
In December 2010, Perez Company established its predetermined overhead rate for jobs produced during year 2011 by using the following cost predictions: overhead costs, $600,000, and direct labor costs, $500,000.
At year end 2011, the company's records show that actual overhead costs for the year are $680,000. Actual direct labor cost had been assigned to jobs as follows.
Jobs completed and sold . . . . . . . . . . . . . . . . . $420,000
Jobs in finished goods inventory . . . . . . . . . . . 84,000
Jobs in goods in process inventory . . . . . . . . . 56,000
Total actual direct labor cost . . . . . . . . . . . . . $560,000
1. Determine the predetermined overhead rate for year 2011.
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.