Question

Reith Inc. has provided the following data for the month of November. There were no beginning inventories consequently, the direct materials, direct labor, and manufacturing overhead applied listed below are all for the current month. Direct materials Direct labor Manufacturing overhead applied Total Work In Process $1,650 3,510 1,560 $6,920 Finished Goods $10,440 22,620 7,800 $40,860 Cost of Goods Sold $ 58,560 126,880 42,640 $228,080 Total $ 70,850 153, 010 52,000 $275,860 Manufacturing overhead for the month was overapplied by $4,000. The company allocates any underapplied or overapplied manufacturing overhead among work in process, finished goods, and cost of goods sold at the end of the month on the basis of the overhead applied during the month in those accounts The journal entry to record the allocation of any underapplied or overapplied manufacturing overhead for November would include the following:

Answer 1

Answer:

When the overhead has been over-applied, it means that all the relevant accounts such as work in process, finished goods and cost of goods sold have been debited additionally. Whenever we apply overheads, we debit the relevant above mentioned accounts and credit the manufacturing overhead account. Since there is an over-applied case of overheads, we need to credit the relevant mentioned accounts to the extent the overheads have been over-applied. Hence, the amount that finished goods account will be credited will be: Amount = Overapplied Overheads X Overheads Applied to Finished Goods/Total Overheads Applied Amount = $4,000 X $7,800/$52,000 Amount = $600 Hence, the correct option is the second option. Finished goods account will be credited by $600.