Question: In December 2010, Gomez Company's manager estimated next year's total direct labor cost assuming 50 persons working an average of 2,000 hours each at an average wage rate of $15 per hour. The manager also estimated the following manufacturing overhead costs for year 2011.
Indirect labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $159,600
Factory supervision . . . . . . . . . . . . . . . . . . . . . . . . 120,000
Rent on factory building . . . . . . . . . . . . . . . . . . . . 70,000
Factory utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,000
Factory insurance expired . . . . . . . . . . . . . . . . . . . 34,000
Depreciation-Factory equipment . . . . . . . . . . . . 240,000
Repairs expense-Factory equipment . . . . . . . . . 30,000
Factory supplies used . . . . . . . . . . . . . . . . . . . . . . 34,400
Miscellaneous production costs . . . . . . . . . . . . . . 18,000
Total estimated overhead costs . . . . . . . . . . . . . . $750,000
At the end of 2011, records show the company incurred $725,000 of actual overhead costs. It completed and sold five jobs with the following direct labor costs: Job 201, $354,000; Job 202, $330,000; Job 203, $175,000; Job 204, $420,000; and Job 205, $184,000. In addition, Job 206 is in process at the end of 2011 and had been charged $10,000 for direct labor. No jobs were in process at the end of 2010. The company's predetermined overhead rate is based on direct labor cost.
Required: 1. Determine the following.
a. Predetermined overhead rate for year 2011.
b. Total overhead cost applied to each of the six jobs during year 2011.
c. Over- or underapplied overhead at year-end 2011.
2. Assuming that any over- or underapplied overhead is not material, prepare the adjusting entry to allocate any over- or underapplied overhead to Cost of Goods Sold at the end of year 2011.