Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 8

Prorate Under- or Overapplied Overhead

Refer to the information in Exercise 7-23. Prepare an entry to allocate the under- or overapplied overhead. Overhead applied in each of the inventory accounts is as follows:

Work-in-process inventory	$10,125
Finished goods inventory	30,375
Cost of goods sold	60,750

Step 1 of 4

Predetermined Overhead rate is the estimated manufacturing overhead for the coming year divided by the estimated activity of the allocation base for the year.

Allocation base for M Corporation is direct Labour cost.

Predetermined rate is calculated as under:

Therefore, the predetermined rate is 45 percent.