CALCULATING THE PREDETERMINED OVERHEAD RATE, APPLYING OVERHEAD TO PRODUCTION, RECONCILING OVERHEAD AT THE END OF THE YEAR, ADJUSTING COST OF GOODS SOLD FOR UNDER- AND OVERAPPLIED OVERHEAD At the beginning of the year, Olivar Company estimated the following:

Overhead $216,000 Direct labor hours 80,000 Olivar uses normal costing and applies overhead on the basis of direct labor hours.

For the month of January, direct labor hours were 7,950. By the end of the year, Olivar showed the following actual amounts:

Overhead $226,000 Direct labor hours 82,600 Assume that unadjusted Cost of Goods Sold for Olivar was $235,670.

Required:

. Calculate the predetermined overhead rate for Olivar.

. Calculate the overhead applied to production in January.

. Calculate the total applied overhead for the year. Was overhead over- or underapplied? By how much?

. Calculate adjusted Cost of Goods Sold after adjusting for the overhead variance.

Exercise