Question

Bultz company manufactures an energy drink. The company uses a budgeted indirect-cost rate for it's manufacturing operations and during 2014 allocated 1,000,000$ to work in process inventory. Actual overhead incurred was 1,200,000$. Ending balances are: Work in process 100,000$ Finished Goods 750,000$ Cost of Goods sold 4,150,000

a. Prepare a journal entry to write off the difference between allocated and actual overhead directly to Cost of Goods Sold. Be sure your journal entry closes the related overhead accounts.

b. Prepare a journal entry that prorates the write-off of the difference between between allocated and actual overhead using ending account balances. Be sure your journal entry closes the related overhead costs

Answer 1

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Bultz company
Answer a
If the difference between allocated and actual overhead are directly written off to Cost of Goods Sold:
Actual Overhead	1,200,000.00
Allocated Overhead	1,000,000.00
Unallocated Overhead	200,000.00
Journal entry for writing off Unallocated Overhead to Cost of good sold:
Account	Debit $	Credit $
Cost of good sold	200,000.00
Manufacturing Overhead		200,000.00
Answer b
If the difference between allocated and actual overhead are prorated to Work in Process, Finished Goods and Cost of Goods sold:
Then $ 200,000 will be allocated in the ratio of values of Work in Process, Finished Goods and Cost of Goods sold.
Work in Process	100,000.00
Finished Goods	750,000.00
Cost of Goods sold	4,150,000.00
	5,000,000.00
So $ 200,000 will be allocated as below:
Work in Process	200,000/ 5,000,000*100,000	4,000.00
Finished Goods	200,000/ 5,000,000*750,000	30,000.00
Cost of Goods sold.	200,000/ 5,000,000*4,150,000	166,000.00
Journal entry for writing off Unallocated Overhead:
Account	Debit $	Credit $
Work in Process	4,000.00
Finished Goods	30,000.00
Cost of Goods sold.	166,000.00
Manufacturing Overhead		200,000.00