Question

Scenario II: Goodmark Company produces two types of birthday cards: scented and regular. Goodmark uses the Overhead Control account to accumulate both actual and applied overhead. The company has the following data for the past year:

Actual overhead		$760,000
Sales		$3,500,000
Materials used		$1,100,000
Applied Overhead (in each account):
Work in process		$72,000
Finished goods		216,000
Cost of goods sold		432,000

Required:

1.

Calculate the overhead variance for the year and label it under- or overapplied.

Overhead variance: $ Underapplied

2.

Assuming the variance is not material, the following closing entry would be made:

Debit Cost of Goods Sold for $ and credit Materials for $.

3.

If the overhead variance is material, indicate how much of the variance would be debited to each of the following accounts (if an amount is zero, enter "0"):

Work in process		$
Materials		$
Cost of goods sold		$
Sales revenue		$
Finished goods		$

Answer 1

Applied overhead = 72000+216000+432000 = 720000

Actual overhead = 760000

a) Overhead variance = Under applied

b) Debit Cost of goods sold for $40000 and credit manufacturing overhead for $40000

3.	If the overhead variance is material, indicate how much of the variance would be debited to each of the following accounts (if an amount is zero, enter "0"):
	Work in process (72000/720000*40000) $4000 Materials $0 Cost of goods sold (432000/720000*40000) $24000 Sales revenue $0 Finished goods $12000