The Predetermined Overhead Allocation Rate for Forsythe,Inc (ACalculate the Predetermined Overhead Rate and Calculate the Overhead Applied

question 127

Essay

The predetermined overhead allocation rate for Forsythe,Inc.is based on estimated direct labor costs of $400,000 and estimated factory overhead of $500,000.Actual costs incurred were:
$$\begin{array} { l r } \text { Direct materials } & \$ 250,000 \\\text { Direct labor } & 410,000 \\\text { Indirect materials } & 55,000 \\\text { Indirect labor } & 125,000 \\\text { Sales commissions } & 50,000 \\\text { Factory depreciation } & 170,000 \\\text { Property taxes, factory } & 15,000 \\\text { Factory utilities } & 35,000 \\\text { Advertising } & 62,500 \\\text { Factory equipment rental } & 100,000\end{array}$$
(A.Calculate the predetermined overhead rate and calculate the overhead applied during the year.
(B.Determine the amount of over- or underapplied overhead and prepare the journal entry to eliminate the over- or underapplied overhead assuming that it is not material in amount.

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Definitions:

Debt-Equity Ratio

A financial comparison indicating the relationship of debt to equity in financing a company’s assets.

WACC

A calculation of a firm's cost of capital in which each category of capital is proportionately weighted, used to evaluate investment opportunities.

Flotation Costs

Flotation costs are the total costs incurred by a company in issuing new securities, including underwriting fees, legal fees, and registration fees.