Question

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.)

*** The 625,000 is wrong. The rest is right but clearly something else is missing.

Answer 1

Predetermined Overhead rate	125%		=625000/500000
Total direct labor costs	650000		=195000+325000+130000
	Debit	Credit
Applied manufacturing overhead	812500		=650000*125%
Work-in process inventory		2500	=12500/650000*130000
Finished goods inventory		6250	=12500/650000*325000
Cost of goods sold		3750	=12500/650000*195000
Manufacturing overhead control		800000