Question

Floral Foundry uses a predetermined manufacturing overhead rate to allocate overhead to individual jobs based on the machine hours required. At the beginning of the year, the company expected to incur the following:

Manufacturing overhead costs. . . . . . . .	$640,000
Direct labor cost. . . . . . . . . . . . . . . . . . .	$1,600,000
Machine hours. . . . . . . . . . . . . . . . . . . . .	80,000

At the end of the year, the company had actually incurred the following:

Direct labor cost. . . . . . . . . . . . . . . . . . . . . . . . . . . .	$1,190,000
Depreciation on manufacturing plant and
equipment. . . . . . . . . . . . . . . . . . . . . . . .	$490,000
Property taxes on plant. . . . . . . . . . . . . . . . . . . . . .	$19,500
Sales salaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$24,000
Delivery drivers' wages. . . . . . . . . . . . . . . . . . . . . .	$16,500
Plant janitors' wages. . . . . . . . . . . . . . . . . . . . . . . .	$8,500
Machine hours. . . . . . . . . . . . . . . . . . . . . . . . . . . . .	56,000 hours

Floral's accountant found an error in the expense records from the year reported. Depreciation on manufacturing plant and equipment was actually$400,000 not the $490,000 that had originally been reported. The unadjusted Cost of Goods Sold balance at year-end was$570,000 The manufacturing overhead allocated to jobs was$448,000

Read the requirements

Prepare the journal entry to record manufacturing overhead costs incurred.
2.	Prepare the journal entry to record the manufacturing overhead allocated to jobs in production.
3.	Use a T-account to determine whether manufacturing overhead is underallocated or overallocated and by how much.
4.	Record the entry to close out the underallocated or overallocated manufacturing overhead.
5.	What is the adjusted ending balance of Cost of Goods Sold?

Requirement 1. Prepare the journal entry to record manufacturing overhead costs incurred. (Record debits first, then credits. Exclude explanations from any journal entries.)

Journal Entry
Date		Accounts	Debit	Credit

Answer 1

Manufacturing overhead costs incurred:

Depreciation on manuf. Plant and Equipment = 490,000

Add: Property taxes on plant= 19,500

: Plant janitors’ wages= 8,500

Total Manufacturing Overhead= 518,000

Journal Entry:

Date	Accounts	Debit	Credit
	Manufacturing Overhead	518000
	To Depreciation on Plant and Equipment		490000
	To Property taxes on plant		19500
	To Plant Janitors’ wages		8500

2. Allocation of Manufacturing Overhead

Predetermined manufacturing overhead rate = Budgeted Manufacturing Overhead/ Budgeted Machines Hours

= 640,000 /80,000 = $8 per Machine Hours

              Allocated manufacturing overhead = Predetermined Overhead rate * Actual machine hours

= 8 * 56000 = 448,000

journal entry

Date	Accounts	Debit	Credit
	Work in process	4,48,000
	To Manufacturing overhead		4,48,000

3. Manufacturing Overhead Account

To Dep. – P and E	4,90,000	By Work in process	4,48,000
To Property Taxes –P	19,500	By Dep- P and E (excess written back)	90,000
To Janitor Wages	8,500
To Balance(OH over allocated)	20,000
	5,18,000		5,38,000

Manufacturing overhead is over allocated by $20,000.

4. Journal Entry to close out Manufacturing overhead

Date	Accounts	Debit	Credit
	Manufacturing overhead	20,000
	To Cost of Goods Sold		20,000

5. Adjusted Balance f Cost of Goods Sold

Balance of COGS = 570,000

Less: over allocated overhead written back = 20,000

Adjusted balance= 550,000