Question

Exercise 3-8 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. Manufacturing Overhead (a) 460,000 (b) 390,000 Bal. 70,000 Bal. Work in Process 15,000 (c) 710,000 260,000 85,000 390,000 40,000 Bal. (c) Bal. Finished Goods 50,000(d) 640,000 710,000 120,000 (b) Bal. Cost of Goods Sold 640,000 (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 $ 19,500 58,500 312,000 $ 390,000 For example, of the $40,000 ending balance in work in process, $19,500 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

Part 1

Item (a)	Actual manufacturing overhead costs for the year
Item (b)	Overhead cost applied to work in process for the year
Item (c)	Cost of goods manufactured for the year
Item (d)	Cost of goods sold for the year

Part 2

Event	General journal	Debit	Credit
1	Cost of goods sold	70000
	Manufacturing overhead		70000

Manufacturing overhead is underapplied

Part 3

Event	General journal	Debit	Credit
1	Work in process (70000*19500/390000)	3500
	Finished goods (70000*58500/390000)	10500
	Cost of goods sold (70000*312000/390000)	56000
	Manufacturing overhead		70000