Question

1. What is the difference between actual and applied manufacturing overhead? 2. What is the journal entry to record actual manufacturing overhead costs? 3. What is the journal entry to apply manufacturing overhead? 4. How do you know if manufacturing overhead is under or over applied? 5. Why is it important to adjust Cost of Goods Sold for under/over applied manufacturing overhead? 6. Identify the four level hierarchy that in which costs are grouped while creating an Activity-Based Costing System. Choose a manufacturing company and identify three types of costs that should be included in each category.

Answer 1

1. Actual Overhead is the amount of overhead cost that the company actually incurred, but applied overhead is the amount that is added to jobs cost as work is completed.

2. Journal Entry To record actual manufacturing overhead Cost is

Work-in-progress inventory account Dr

To Manfacturing Overheads Account

3. Journal entry When Under Applied :

Cost Of Goods Sold Dr

To Manfacturing Overheads Account

   Journal Entry when Over Applied

Manufacturing Overheads account Dr

To Cost of Goods Sold

4. If Applied Overheads is more than Actual Overheads then it is Over Applied manufacturing overhead. on the other hand

If applied overhead is less than actual overheads then it is Under Applied Manufacturing overhead.

5. It is Important to adjust Cost of Goods Sold, because Cost of Goods Sold includes manufacturing Overheads and the same is used in determining the gross profit.