Question

Please provide details on how to answer this problem

Aspen Company estimates its manufacturing overhead to be $625,000 and its direct labor costs to be $500,000 for year 2. Aspen worked on three jobs for the year. Job 2-1, which was sold during year 2, had actual direct labor costs of $195,000. Job 2-2. which was completed, but not sold at the end of the year, had actual direct labor costs of $325,000. Job 2-3, which is still in work-in-process inventory, had actual direct labor costs of $130,000. Actual manufacturing overhead for year 2 was $800,000. Manufacturing overhead is applied on the basis of direct labor costs. Required: Prepare an entry to allocate over- or underapplied overhead to Work in Process, Finished Goods and Cost of Goods Sold. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record the allocation of over- or underapplied overhead. Note: Enter debits before credits. Transaction General Journal Debit Credit Record entry Clear entry View general journal

Answer 1

JOURNAL ENTRY TO ALLOCATE OVER OR UNDER APPLIED OVERHEAD TO WORK IN PROCESS, FINISHED GOODS AND COST OF GOODS SOLD.

Transaction	General journal	Debit.	Credit
1.	Applied Manufacturing Overhead	$812500
	Work in process inventory		$2500
	Finished goods		$6250
	Cost of goods sold		$3750
	Manufacturing overhead control		$800000

In the question,

Given: Direct labour costs = $500000 and Estimated mfg. Overhead = $650000

Then, Overhead applied rate = ($650000 ÷ $500000)×100 = 125%

Manufacturing Overhead applied for a particular job

= Direct labour costs incurred × overhead rate.

Job	Direct Labour costs(a)	Overhead applied rate(b)	Manfacturing Overhead applied. (a ×b)
2-1	$195000	125%	$243750
2-2	$325000	125%	$406250
2-3	$130000	125%	$162500

Total manufacturing applied = $243750+$406250+$162500 = $812500.

And it is given that actual manufacturing overhead for year 2 = $80000.

Therefore, Over applied overhead = $815000 - $800000 = $12500.

These over applied overhead is to be approximated in between Working process, finished goods and cost of goods sold based on the ratio of their direct labour costs

Ratio = 130000 : 325000 : 195000 = 2:5:3

Out of the over applied overhead of $12500,

work in process over applied = $12500× (2÷10) = $2500.

Finished goods over applied = $12500× (5÷10) = $6250.

Cost of goods sold over applied = $12500× (3÷10) = $3750.

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