In December 2018, the Wilson Company established its pre-determined overhead rate for Grandfather Clocks produced during 2019 by using the following cost predictions: Overhead costs, $1,680,000 and Labor cost, $480,000. At year-end 2019, the company's records reflect that actual Overhead costs for the year are $1,652,000. Actual Direct Labor costs had been assigned to jobs as follows:" Movies completed and released $425,000
Movies still in production 50,000
Total actual direct labor cost $475,000
A. Determine the pre-determined overhead rate for 2015.
B. Determine whether overhead is overappliedor underapplied (and the amount) during the year.
C. Prepare the adjusting entry to allocate any over- orunderapplied overhead to Cost of Goods Sold.

Instructions are below.

Explanation:

Giving the following information:

Estimated Overhead cost= $1,680,000

Estimated Labor cost= $480,000

Actual:

Overhead costs= $1,652,000.

Actual Direct Labor costs= $475,000

First, we need to calculate the predetermined overhead rate:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Predetermined manufacturing overhead rate= 1,680,000/480,000

Predetermined manufacturing overhead rate= $3.5 per direct labor dollar

Now, we allocate overhead:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Allocated MOH= 3.5*475,000= $1,662,500

To calculate any under/over allocation, we will use the following formula:

Under/over applied overhead= real overhead - allocated overhead

Under/over applied overhead= 1,652,000 - 1,662,500

Under/over applied overhead= $10,500 underallocated

Finally, the adjusting entry:

Cost of goods sold     10,500

underapplied overhead     10,500

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