Concept explainers
Concept Introduction:
Predetermined
Predetermined overhead allocation rate is calculated as follows-
Under or Over applied overhead-
Under or Over applied overhead- It is the difference between the actual and applied overhead.
If the actual overhead incurred is more than the overhead applied during a particular period, then it is a case of under-applied of overhead cost.
If the actual overhead incurred is less than the overhead applied during a particular period, then it is a case of over-applied of overhead cost
- Predetermined overhead rate
- Total overhead cost applied to each job
- Over or under applied overhead

Answer to Problem 4APSA
(a) Predetermined overhead rate
(b) Total overhead cost applied to each job
Job No. | Direct Labor | Applied overhead (60%) |
201 | 604,000 | 362,400 |
202 | 563,000 | 337,800 |
203 | 298,000 | 178,800 |
204 | 716,000 | 429,600 |
205 | 314,000 | 188,400 |
206 | 17,000 | 10,200 |
Total | 2,512,000 | 1,507,200 |
(c) Over or under applied overhead
Particulars | Amount ($) |
Actual overhead cost | 15,20,000 |
Less: Applied overhead cost | 15,07,200 |
Under applied overhead | 12,800 |
Explanation of Solution
(a) Predetermined overhead rate
Given, Estimated overhead cost = $1,500,000
(b) Total overhead cost applied to each job
Given,
Direct labor cost-
(c) Over or under applied overhead
Given,
Conclusion:
Thus, the predetermined overhead, applied overhead and under applied overheads are determined.
Concept Introduction:
Cost of goods sold -
Cost of goods sold can be defined as the total cost assigned to the goods that are sold during a period of time. It is calculated by summing up all the costs incurred starting from purchases till the process of manufacturing.
Adjusting entries are prepared to complete the financial statement of the company and to reflect the accrual method of accounting. Adjusting entries are prepared before issuance of financial statement.
To prepare the adjusting entry.

Answer to Problem 4APSA
Adjusting
Date | Accounts titles and Explanation | Debit ($) | Credit ($) |
Dec.31 | Cost of goods sold | 12,800 | |
Factory overhead | 12,800 | ||
(To assign under-applied overhead) |
Explanation of Solution
Explanation for journal entry-
When overhead is under applied, the jobs are charged with less overhead than the actual and cost of goods sold will be charged with less overhead. Cost of goods is a cost and its balance increases, so it is debited and factory overhead is credited.
Conclusion:
Thus, overhead is under applied by $12,800.
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Chapter 19 Solutions
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