At the beginning of the year, Infodeo established its predetermined overhead rate for movies produced during the year by using the following cost predictions: overhead costs, $2,000,000,and direct labor costs, $500,000. At year-end, the companyâs records show that actual overhead costs for the year are $949,700.
Actual direct labor cost had been assigned to jobs as follows.

Movies completed and released $400,000
Movies still in production 36,000
Total actual direct labor cost $436,000

Required:
1) Determine the predetermined overhead rate for the year.
2) Enter the overhead costs incurred and the amounts applied during the year using the predetermined overhead rate and determine whether overhead is overapplied or underapplied.
3) Prepare the adjusting entry to allocate any over or underapplied overhead to Cost of Goods Sold.

1. 400%

2. The overhead is over applied by $794,300

3.  Account                                            Debit         Credit

   Factory overhead                         $794,300

   Cost of goods sold                                            $794,300

Explanation:

Overhead costs = $2,000,000

Direct labor costs = $500,000.

1. To calculate the predetermined overhead rate, we use the formula

Predetermined overhead rate = × 100

= × 100 = 400%

Therefore, Predetermined overhead rate = 400%

2. Applied overhead cost = Direct material cost × Predetermined overhead cost

Total direct labor cost = $436,000

Therefore, applied overhead cost = $436,000 × 400% = $1,744,000

Actual overhead costs = $949,700

Factory overhead = Applied overhead - Actual overhead

= $1,744,000 - $949,700

= $794,300

The overhead is over applied by $794,300

3.  Account                                            Debit         Credit

   Factory overhead                         $794,300

   Cost of goods sold                                            $794,300

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