Chapter 19, Problem 16E

To determine

Applied Overhead Cost:

The overhead cost estimated by the company during a particular period of time is called applied overhead cost. It is estimated based on the predetermined overhead rate ascertained by dividing the estimated overhead cost by the allocation base specified by the company. If the actual overhead cost incurred on the production is more than the applied overhead cost estimated, the overhead cost is underapplied and if the actual overhead cost is less than the applied overhead cost, the overhead cost overapplied. An underapplied overhead cost increases the cost of goods sold and an overapplied overhead cost decreases the cost of goods sold.

To determine:

1. Computation of predetermined overhead rate using predicted direct labor costs.

2. Prepare T-account for Factory Overhead and enter the overhead cost incurred and overhead cost applied during the year.

3. Compute overapplied or underapplied overhead cost during the year.

4. Preparation of adjusting entry to allocate any over-or underapplied overhead.