Question

applied vs. actual manufacturing overhead davis manufacturing corporation applies manufacturing overhead on the basis of 150% of direct labor cost. an analysis of the related accounts and job order cost sheet indicates that during the year total manufacturing overhead incurred was $472,500 and that at year-end work in process inventory, finished goods inventory, and cost of goods sold included $60,000, $30,000, and $210,000, respectively, of direct labor incurred during the current year. a. determine the under applied manufacturing overhead at year-end (assume it is significant).

Answer 1

Subapplication of 22,500

journal entry:

WIP 4,500 debit

finished goods 2,250 debit

COGS 15,750 debit

factory overhead 22,500 credit

Step-by-step explanation:

Direct Labor cost during the year:

60,000 + 30,000 + 210,000 = 300,000 direct labor

Applied overhead:

cost driver x predetermined rate

300,000 x 150% = 450,000

Actual overhead: 472,500

Subapplication of 22,500

as this is a significant amount we must adjust the WIP inventory, cost of goods sold and fnished goods inventory

to know the adjustment on each account we calcualte each account percentage:

300,000 --> 22,500

60,000 --> 60,000/300,000 x 22,500 = 4,500 endingWIP

30,000 --> 30,000/300,000 x 22,500 = 2,250 finished goods

210,000--> 210,000/300,000 x 22,500 = 15,750 COGS

we do the adjuting entry to increase overhead and transfer into each concept