Moira Company has just finished its first year of operations and must decide which method to...

Question

Moira Company has just finished its first year of operations and must decide which method to use for adjusting cost of goods sold. Because the company used a predetermined overhead rate based on Direct Labor Hours with the following relevant information:

Budgeted Manufacturing Overhead	$500,000
Actual Manufacturing Overhead	$400,000
Budgeted Direct Labor Hours	20,000 hours
Actual Direct Labor Hours	21,000 hours

Ending balances in the relevant accounts were:

Raw Materials	$26,432
Work-in-Process	40,000
Finished Goods	80,000
Cost of Goods Sold	680,000

Prepare the entry to record the actual manufacturing overhead that was incurred (50% was depreciation and 50% utilities payable).
Record the entry to allocate the overhead to the jobs.
How much is the overhead under-allocated or over-allocated?
Prepare the entry to close out the over or under allocated at the end of the period if it is not prorate
Prepare the entry at the end of the period if it is prorated.
Would you recommend that closing out the overhead should follow d or e. Explain your answer.

 · Answer

1)  Account titles & Explanations      Debit  Credit                 Manufacturing overhead    400,000       Accumulated depreciation     200,000     utilities payable      200,000                          2) overhead allocated to jobs          500,000/20,000*21000          525000                                3)  overapplied overhead         applied overhead     525,000      Actual overhead     400,000      overhead overapplied    125,000  answer               4)  Account titles & Explanations      Debit  Credit                 manufacturing overhead    125,000      cost of goods sold      125,000                          5)  Account titles & Explanations      Debit  Credit                 Manufacturing overhead    125,000      Work in process     6250     finished goods      12500     cost of goods sold      106,250                          6) should follow e as the amount of overhead overapplied is high so it would be    better to use prorated method otherwise the cost of goods sold will be expectionally    low                     .

 · Answer

1) Account titles & Explanations Debit Credit          Manufacturing overhead 400,000     Accumulated depreciation  200,000    utilities payable  200,000               2) overhead allocated to jobs      500,000/20,000*21000      525000                 3) overapplied overhead      applied overhead 525,000     Actual overhead 400,000     overhead overapplied 125,000 answer         4) Account titles & Explanations Debit Credit    not prorated      manufacturing overhead 125,000     cost of goods sold  125,000               5) Account titles & Explanations Debit Credit    prorated      (125000/800000) = 0.15625      Manufacturing overhead 125,000     Work in process (40000*0.15625)  6250    finished goods (80000*0.15625)  12500    cost of goods sold (680000*0.15625)  106,250         6) should follow e as the amount of overhead overapplied is high so it would be    better to use prorated method otherwise the cost of goods sold will be expectionally    low         .

Moira Company has just finished its first year of operations and must decide which method to...

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1)	Account titles & Explanations	Debit	Credit

	Manufacturing overhead	400,000
	Accumulated depreciation		200,000
	utilities payable		200,000


2)	overhead allocated to jobs
	500,000/20,000*21000
	525000


3)	overapplied overhead
	applied overhead	525,000
	Actual overhead	400,000
	overhead overapplied	125,000	answer

4)	Account titles & Explanations	Debit	Credit

	manufacturing overhead	125,000
	cost of goods sold		125,000


5)	Account titles & Explanations	Debit	Credit

	Manufacturing overhead	125,000
	Work in process		6250
	finished goods		12500
	cost of goods sold		106,250


6)	should follow e as the amount of overhead overapplied is high so it would be
	better to use prorated method otherwise the cost of goods sold will be expectionally
	low