Question

Exercise 3-8 (Algo) Applying Overhead; Journal Entries; Disposing of Underapplied or Overapplied Overhead [LO3-1, LO3-2, LO3-4]

The following information is taken from the accounts of Latta Company. The entries in the T-accounts are summaries of the transactions that affected those accounts during the year.

Manufacturing Overhead
(a)	474,624	(b)	395,520
Bal.	79,104

Work in Process
Bal.	15,480	(c)	734,000
	281,000
	88,000
(b)	395,520
Bal.	46,000

Finished Goods
Bal.	44,000	(d)	652,000
(c)	734,000
Bal.	126,000

Cost of Goods Sold
(d)	652,000

The overhead that had been applied to production during the year is distributed among Work in Process, Finished Goods, and Cost of Goods Sold as of the end of the year as follows:

Work in Process, ending	$	22,080
Finished Goods, ending		60,480
Cost of Goods Sold		312,960
Overhead applied	$	395,520

For example, of the $46,000 ending balance in work in process, $22,080 was overhead that had been applied during the year.

Required:

1. Identify reasons for entries (a) through (d).

2. Assume that the underapplied or overapplied overhead is closed to Cost of Goods Sold. Prepare the necessary journal entry.

3. Assume that the underapplied or overapplied overhead is closed proportionally to Work in Process, Finished Goods, and Cost of Goods Sold. Prepare the necessary journal entry.

Answer 1

1
a	Actual manufacturing overhead costs for the year.
b	Overhead cost applied to work in process for the year.
c	Cost of goods manufactured for the year.
d	Cost of goods sold for the year.
2
	General Journal	Debit	Credit
	Cost of goods sold	79104
	Manufacturing overhead		79104
3
	General Journal	Debit	Credit
	Work in process	4416		=79104*22080/395520
	Finished goods	12096		=79104*60480/395520
	Cost of goods sold	62592		=79104*312960/395520
	Manufacturing overhead		79104