Problem No. 3 (x2) **
The Glass City Company had the following transactions and events during its first year of operations. Estimated
overhead for the year was $770,000; Estimated direct labor cost for the year was $350,000.
a) Purchased materials on account, $567,00.
b) Requisitioned materials for production as follow:- direct materials 85% of purchases, indirect martials -
12% of purchases.
c) Direct labor for production is $331,000, indirect labor is $125,000.
d) Overhead incurred (not including materials or labor): $529,000.
e) Overhead is applied to production based on direct labor cost. (Use the POHR calculated in part 1 to calculate
the applied OH and then prepare the journal entry.)
Required: -
Part 1. What is the Predetermined Overhead Rate for the year?
$\frac{770,000 \times 100}{350,000} = 220\%$ of direct labor cost
Part 2. Prepare the journal entries to record transactions a - e.
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Part 3 - Is the overhead over - or under - applied and by how much?
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Part 4 Prepare the journal entry to make the adjustment of over- or under-applied overhead to Cost of Goods
Sold.
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