Question

The following information is taken from the accounts of Latta Company. The entries in the T-accounts are summaries of the transactions that affected those accounts during the year. Manufacturing Overhead Work in Process Pinished Goods (a) 472,320 (b) 393, 600 bal. 16,400 (0) 730,000 Bal. 45,000(d) 650,000 Bal. 78,720 277,500 (c) 730,000 87,500 Bal. 125,000 393,600 45,000 Cost of Goods Sold (d) 650,000 The overhead that had been applied to production during the year is distributed among Work in Process, Finished Goods, and Cost of Goods Sold as of the end of the year as follows: Work in Process, ending Finished Goods, ending Cost of Goods Sold Overhead applied $ 21,600 60,000 312.000 $ 393,600 For example, of the $45,000 ending balance in work in process, $21,600 was overhead that had been applied during the year. Required: 1. Identify reasons for entries (a) through (d). 2. Assume that the underapplied or overapplied overhead is closed to Cost of Goods Sold. Prepare the necessary journal entry. 3. Assume that the underapplied or overapplied overhead is closed proportionally to Work in Process, Finished Goods, and Cost of Goods Sold. Prepare the necessary journal entry. Complete this question by entering your answers in the tabs below.

Answer 1

1) a) Actual manufacturing overhead costs incurred [Debit in Mfg. overhead account represents actual overhead costs incurred] b) Manufacturing overhead applied to work in process [Credit in Mfg. Overhead account represents mfg. overhead costs applied to production) c) Cost of work in process completed and transferred to finished goods (= Cost of goods manufactured) [Credit in Work in process account and corresponding debit in Finished goods account represents cost of goods manufactured and transaferred to finished goods] d) Cost of finished goods sold during the period [Credit in Finished goods account and corresponding debit in Cost of goods sold account represents cost of finished goods sold during the reporting period] 2) Actual Mfg. overhead costs incurred $472,320 [Ref: explanation for Part-1(a)] Mfg. overhead applied to work in process $393,600 [Ref: explanation for Part-1(b)] Under-applied manufacturing overhead cost $78,720 ($472320 - $393600] (It is under-applied because manufacturing overhead applied to work in process is less than actual manufacturing overhead incurred) Journal entry to close under-applied overhead to cost of goods sold: Account titles Cost of goods sold Manufacturing overhead Debit $78,720 Credit [Cost of goods sold is debited as current cost of goods sold would be reported short due to under-applied mfg. OH] $78,720 [Mfg. overhead is credited as current mfg. overhead applied would show debit balance due to under-applied mfg. OH]

3) Value of ending work in process without overhead applied Value of ending finished goods Value of cost of goods sold Total cost of ending inventory reported $23,400 [$45,000 - $21,600] $125,000 $650,000 $798,400 Journal entry to close under-applied overhead to work-in-process, finished goods and cost of goods sold proportionately: Credit Account titles Work in process Finished goods Cost of goods sold Manufacturing overhead Debit $2,307.17 $12,324.65 $64,088.18 (If rounded off to 0 decimal) Debit Credit $2,307 [$78720 x ($23400 / $798400)] $12,325 [$78720 x ($125000 / $798400)] $64,088 [$78720 x ($650000 / $798400)] $78,720 $78,720.00