Question

XYZ Company had the following information:

Budgeted overhead                                         $75,000

Actual overhead                                              $80,000

Budgeted Direct-labor hours                          20,000

Ending balances in the following accounts:

	Ending Balance	Actual DLH in Ending Balance
Raw Materials Inventory	$ 40,000	0
Work In Process Inventory	$ 30,000	2,100
Finished Goods Inventory	$ 60,000	8,400
Cost of Goods Sold	$210,000	10,500

• Prepare the journal entry using the adjusted allocation method, ie. prorate the under- or over-allocated manufacturing overhead based on the overhead allocated in the ending balances of WIP, F/G and COGS
• Prepare the journal entry to close the overhead accounts using the proration method, ie., prorate the under- or over-allocated manufacturing overhead based on the ending balances in WIP, F/G and COGS.
• Prepare the journal entry to close the overhead accounts if the balance in (c) is considered immaterial and written off to COGS.

Answer 1

Under-applied Overhead = $80000 - 75000 = $5000

a.

Account Titles	Debit	Credit
Work in Process Inventory	$              500
Finished Goods Inventory	$           2,000
Cost of Goods Sold	$           2,500
Manufacturing Overhead		$           5,000

b.

Account Titles	Debit	Credit
Work in Process Inventory	$              500
Finished Goods Inventory	$           1,000
Cost of Goods Sold	$           3,500
Manufacturing Overhead		$           5,000

c.

Account Titles	Debit	Credit
Cost of Goods Sold	$           5,000
Manufacturing Overhead		$           5,000