Question

During the year, a large quantity of furniture on the market resulted in cutting back production and a buildup of furniture in the company's warehouse. The company's cost records revealed the following actual cost and operating data for the year. 5 50,000 570,000 Machine-hours Manufacturing overhead cost Inventories at year-end: Raw materials Work in process (includes overhead applied of $22,500) Finished goods (includes overhead applied of $76,500) Cost of goods sold (includes overhead applied of $351,000) $ 18,000 $ 93,500 $ 317,900 $ 1,458,600 Required: 1. Compute the underapplied or overapplied overhead. 2. Assume that the company closes any underapplied or overapplied overhead to Cost of Goods Sold. Prepare the appropriate journal entry. 3. Assume that the company allocates any underapplied or overapplied overhead proportionally to Work in Process, Finished Goods, and Cost of Goods Sold. Prepare the appropriate journal entry. 4. How much higher or lower will net operating income be if the underapplied or overapplied overhead is allocated to work in Process, Finished Goods, and Cost of Goods Sold rather than being closed to Cost of Goods Sold?

Answer 1

1
Manufacturing overhead cost	570000
Less: Overhead applied	450000	=22500+76500+351000
Underapplied overhead	120000
2
General Journal	Debit	Credit
Cost of goods sold	120000
Manufacturing overhead		120000
3
General Journal	Debit	Credit
Work in Process	6000		=120000/450000*22500
Finished goods	20400		=120000/450000*76500
Cost of goods sold	93600		=120000/450000*351000
Manufacturing overhead		120000
4
Net operating income will be $26400 greater if the underapplied overhead (120000-93600)
is allocated rather than closed entirely to cost of goods sold