Question

Exercise 3-8 (Algo) Applying Overhead; Journal Entries; Disposing of Underapplied or Overapplied Overhead [LO3-1, LO3-2, LO3-4] 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. (a) Manufacturing Overhead 483,840 (6) 403,200 80,640 Bal. 750,000 660,000 Work in Process 11,800 (c) 295,000 90,000 403, 200 50,000 Finished Goods 40,000 (d) 750,000 130,000 Bal (c) Bal. Bal. (b) Bal. Cost of Goods Sold 660,000 (d) 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 $ 24,000 62,400 316,800 $ 403,200 For example, of the $50,000 ending balance in work in process, $24,000 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.

Answer 1

Solution

1) Identify reasons

a	Actual manufacturing overhead for the year
b	Applied manufacturing overhead for the year
c	Cost of goods manufactured for the year
d	Cost of goods sold for the year

2) Journal entry

Account and Explanation	Debit	Credit
Cost of goods sold	$80,640
Manufacturing overhead		$80,640
(To record under applied overhead)

3) Journal entry

Account and Explanation	Debit	Credit
Work in process	$4,800 ($24,000/$403,200 x $80,640)
Finished goods	$12,480 ($62,400/$403,200 x $ 80,640)
Cost of goods sold	$63,360 ($ 316,800/$403,200 x $ 80,640)
Manufacturing overhead		$80,640
(To record under applied overhead)

Please give thumbs up if you like my answer :-)