Question

Q 1 Job Costing

     Huda Corporation’s accounting information system showed the following balances at the end    

      of this period:

Work in process               $40,000

Finished goods                   60,000

Cost of goods sold            100,000

      Miss-applied overhead this period totaled $60,000; Huda maintains a single overhead account in its general ledger. If the miss-applied overhead is considered material, prepare the journal entry to record its disposition.

      Discuss why you could have Misallocated Overhead?

Answer 1

Solution:

Miss applied overhead = underapplied overhead = $60,000

To record this disposition, $60,000 will be applied to WIP, Finished goods and cost of Goods sold in the ratio of their Value.

Journal Entry
Account Title and Explanation	Debit	Credit
Work in process Inventory Dr ($60000 *40000/200000)	$12,000.00
Finished Goods Inventory Dr ($60000 *60000/200000)	$18,000.00
Cost of Goods Sold Dr ($60000 *100000/200000)	$30,000.00
To Overhead Account		$60,000.00

Reasons for miss- allocated overhead:

1. If the actual overheads are more than applied overhead then it will result in miss allocated overhead.

2. If overhead is applied on the basis of predetermined overhead rate then it may result in miss allocated overhead.