Question

Duck Commander estimates its manufacturing overhead to be $601,200 and its direct labor costs to be $501,000 for year 2. Aspen worked on three jobs for the year. Job 2-1, which was sold during year 2, had actual direct labor costs of $203,250. Job 2-2, which was completed, but not sold at the end of the year, had actual direct labor costs of $406,500. Job 2-3, which is still in work-in-process inventory, had actual direct labor costs of $67,750. Actual manufacturing overhead for year 2 was $825,200. Manufacturing overhead is applied on the basis of direct labor costs.

  

Required:

Prepare an entry to allocate over- or underapplied overhead to Work in Process, Finished Goods and Cost of Goods Sold.

  
Record the Allocation of over or underapplied overhead

Transaction	General	Debit	Credit

Answer 1

Predetermine overhead rate = 601200*100/501000 = 120%

Total direct labour cost = 203250+406500+67750 = 677500

Overhead applied = 677500*1.2 = 813000

Actual overhead = 825200

Under applied overhead = 813000-825200 = 12200

Journal entry :

Transaction	General	Debit	credit
	Cost of goods sold (12200*30%)	3660
	Finished goods (12200*60%)	7320
	Work in process (12200*10%)	1220
	Manufacturing overhead		12200
	(To record under applied overhead)