Manufacturing Overhead Debit Credit tal 460.000 (6) 390,000 Balance 70,000 Work in Process Debit Credit Balance 15,000 (e) 710,000 260,000 85,000 390.000 Balance 40,000 Finished Goods Debit Credit Balance 50,000 (d) 640,000 (c) 710.000 Balance 120,000 Cost of Goods Sold Debit Credit 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. Complete this question by entering your answers in the tabs below. complete this question by entering your answers in the tabs below. Required 1 Required 2 Required Assume that the underapplied or overapplied averead is closed to cost of Goods Sold. Prepare the necessary Journel entry. (if no entry is required for a transaction/event, select No jau atentry required in the first account held. View transaction ist Journal entry worksheet Record the adjustment of manufacturing overhead account to COGS. Note: Enter debits before credits Eva Debit Credit 1 General Journal Cost of goods sold Manufacturing overhead 70,000 70 000 Record entry Cleer entry View general journal
The Correct Answer and Explanation is :
Let’s address each requirement of the question step-by-step:
1. Identify reasons for entries (a) through (d):
- (a): Direct materials, direct labor, and overhead costs are added to the Work in Process (WIP) account.
- (b): Transfers from WIP to Finished Goods as jobs are completed.
- (c): Transfers from Finished Goods to Cost of Goods Sold (COGS) as goods are sold.
- (d): Closing of the applied overhead to Finished Goods, Cost of Goods Sold, and WIP.
2. Journal Entry: Closing underapplied or overapplied overhead to COGS
The Manufacturing Overhead (MOH) account has a debit balance of $70,000, meaning overhead was underapplied during the year. If this underapplied overhead is closed to COGS, the journal entry is:
Journal Entry:
| Account | Debit ($) | Credit ($) |
|---|---|---|
| Cost of Goods Sold | 70,000 | |
| Manufacturing Overhead | 70,000 |
This entry increases COGS by the amount of underapplied overhead, reflecting the additional cost incurred.
3. Journal Entry: Closing underapplied overhead proportionally
The underapplied overhead of $70,000 is distributed proportionally across Work in Process (WIP), Finished Goods (FG), and Cost of Goods Sold (COGS). The proportions are based on the overhead applied to each account:
- WIP: $19,500 / $390,000 = 5%
- Finished Goods: $58,500 / $390,000 = 15%
- COGS: $312,000 / $390,000 = 80%
Distribute the $70,000 underapplied overhead:
- WIP: $70,000 × 5% = $3,500
- Finished Goods: $70,000 × 15% = $10,500
- COGS: $70,000 × 80% = $56,000
Journal Entry:
| Account | Debit ($) | Credit ($) |
|---|---|---|
| Work in Process | 3,500 | |
| Finished Goods | 10,500 | |
| Cost of Goods Sold | 56,000 | |
| Manufacturing Overhead | 70,000 |
This entry proportionally adjusts the balances of WIP, FG, and COGS to reflect the allocation of underapplied overhead.
Explanation:
The underapplied overhead arises when the actual overhead costs exceed the overhead applied during the year. In the first scenario, the entire underapplied overhead is closed to COGS, simplifying the adjustment but potentially overstating or understating inventory values. In the second scenario, the underapplied overhead is allocated proportionally to WIP, FG, and COGS based on their share of the applied overhead, ensuring a more accurate reflection of inventory and expense balances.