In December 2016, Pavelka 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 \(15 per hour. The manager also estimated the following manufacturing overhead costs for 2017.
Indirect labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \)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 . . . . . . . . . . . . . . . . . . \(750,000
At the end of 2017, records show the company incurred \)725,000 of actual overhead costs. It completed and sold five jobs with the following direct labor costs: Job 625, \(354,000; Job 626, \)330,000; Job 627, \(175,000; Job 628, \)420,000; and Job 629, \(184,000. In addition, Job 630 is in process at the end of 2017 and had been charged \)10,000 for direct labor. No jobs were in process at the end of 2016. The company’s predetermined overhead rate is based on direct labor cost.
Required
1. Determine the following.
a. Predetermined overhead rate for 2017.
b. Total overhead cost applied to each of the six jobs during 2017.
c. Over- or underapplied overhead at year-end 2017.
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 2017.
