Question

Sloan Manufacturing Corporation applies manufacturing overhead on the basis of 120% of direct labor cost. An analysis of the related accounts and job order cost sheet indicates that during the year total manufacturing overhead incurred was $420,000 and that at year-end Work in Process Inventory, Finished Goods Inventory, and Cost of Goods Sold included $60,000, $40,000, and $300,000, respectively, of direct labor incurred during the current year.

a) Determine the over-applied manufacturing overhead at year-end (assume it is significant).

b) Prepare a journal entry to record the disposition of the over-applied manufacturing overhead.

Answer 1

a) Manufacturing Overhead is applied at 120% of direct labour cost. Direct Labour cost of Work in process is 60,000. $o Applied manufacturing overhead for work in process will be 60,000 times 120/100 = 72,000 Direct Labour cost of Finished Goods is $4CL000. $o Applied manufacturing overhead for Finished Goods will be 40,000 times 120/100 = 48,000 Direct Labour cost of Cost of goods $old is $300: 000. $o Applied manufacturing overhead for cost of goods $old will be 300,000 times 120/100 = 360,000 Total Applied manufacturing overhead is72: 000 + 48,000 + 360,000 = 480,000 Total manufacturing overhead incurred is420, 000 Over-applied manufacturing overhead is480, 000 - 420,000 = 60,000 B) When the manufacturing overhead is over applied the account will have a credit balance. To dispose the over applied amount, the manufacturing overhead account will be debited with the over applied amount and the credit will be to the 3 accounts as per their proportions. The account balances after applying manufacturing overhead are Work in process $60: 000 + $72: 000 = $132: 000