Question

Rhythmic Co Ltd applies overhead based on machine hours at $10.00 per machine hour. During the year, actual machine hours amounted to 9,500, actual overhead amounted to $101,500 and budgeted overhead was $100,000. The journal entry to close the Manufacturing Overhead account to Cost of Goods Sold would be:

A. Cost of Goods Sold                     $1,500

Manufacturing Overhead                                             $1,500

B. Manufacturing Overhead             $1,500

Cost of Goods Sold                                                      $1,500

C. Manufacturing Overhead             $5,000

Cost of Goods Sold                                                      $5,000

D. Manufacturing Overhead            $6,500

Cost of Goods Sold                                                      $6,500

E*. Cost of Goods Sold                    $6,560

Manufacturing Overhead                                             $6,500

Answer 1

Applied manufacturing overhead = Predetermined overhead rate * Actual machine hours

= 10 * 9,500 = 95,000

Actual manufacturing overhead = 101,500

So, overhead is underapplied by 6,500 (101,500 - 95,000)

So the entry would be

Cost of Goods Sold	$6,500
Manufacturing overhead		6,500

Option E is the answer (Check the debit entry, it should be $6,500)