Question: In December 2010, Ultravision established its predetermined overhead rate for movies produced during year 2011 by using the following cost predictions: overhead costs, $1,800,000, and direct labor costs, $450,000. At year end 2011, the company's records show that actual overhead costs for the year are $1,770,000. Actual direct labor cost had been assigned to jobs as follows.
Movies completed and released . . . . . . . . . $400,000
Movies still in production . . . . . . . . . . . . . . 45,000
Total actual direct labor cost . . . . . . . . . . . $445,000
1. Determine the predetermined overhead rate for year 2011.
2. Set up a T-account for overhead and enter the overhead costs incurred and the amounts applied to movies 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.