Question

2) Jacobs Company manufactures refrigerators. The company uses a budgeted indirect-cost rate for its manufacturing operations and during 2018 allocated $1,000,000 to work-in-process inventory. Actual overhead incurred was $1,100,000. Ending balances in the following accounts are:

Work-in-Process $ 100,000

Finished Goods 750,000

Cost of Goods Sold 4,150,000

Required: a. Prepare a journal entry to write off the difference between allocated and actual overhead directly to Cost of Goods Sold. Be sure your journal entry closes the related overhead accounts.

b. Prepare a journal entry that prorates the write-off of the difference between allocated and actual overhead using ending account balances. Be sure your journal entry closes the related overhead accounts.

Answer 1

Solution a:

difference between allocated and actual overhead = $1,000,000 - $1,100,000 = $100,000 Underapplied

Account Title	Debit	Credit
Cost of Goods Sold Dr	$1,00,000
To Manufacturing Overhead		$1,00,000

Solution b:

Proportion of variance	Cost	Proportion
Work in Process Inventory	100000	2.00%
Finished Goods Inventory	750000	15.00%
Cost of Goods sold	4150000	83.00%
Total	5000000

Account Title	Debit	Credit
Work in Process Inventory (100000*2%)	$2,000
Finished Goods Inventory (100000*15%)	$15,000
Cost of Goods Sold (100000*83%)	$83,000
To Manufacturing Overhead		$1,00,000