2 answers

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

Question:

  1. 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

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

Answers

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
.

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
.

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