Final answer:
The question deals with the calculation of under- or overapplied overhead in business accounting and the preparation of the corresponding journal entry. The overhead was found to be underapplied by $14,500, and the entry required is a debit to Cost of Goods Sold and a credit to Overhead for this amount.
Step-by-step explanation:
The subject of this question is Business, particularly, the area of managerial accounting that deals with the allocation and application of overhead costs. To compute the under- or overapplied overhead, we use the given overhead rate and actual amounts to calculate applied overhead and compare it to the actual overhead cost.
The formula for applied overhead is: Applied Overhead = Overhead Rate x Direct Labor Cost. Given that the overhead rate is 160% of the direct labor cost, the calculation is as follows:
Applied Overhead = 160% of $606,000 = 1.6 x $606,000 = $969,600.
Since the actual overhead cost is $984,100 and applied overhead is $969,600, the overhead is underapplied by the difference:
Underapplied Overhead = Actual Overhead - Applied Overhead = $984,100 - $969,600 = $14,500.
The journal entry to close the underapplied overhead to Cost of Goods Sold is:
Debit Cost of Goods Sold $14,500
Credit Overhead $14,500
This entry increases the cost of goods sold and closes the under-applied overhead amount.