Question

Thaisom Company applies manufacturing overhead. At the end of the year the following data were available:

Actual Manufacturing Overhead $115,000
Estimated Manufacturing Overhead $120,000
Applied Manufacturing Overhead $118,000
What is the journal entry if the amount of under- or over-applied overhead is considered small?
a. Manufacturing Overhead $3,000 Cost of Goods Sold $3,000
b. Cost of Goods Sold $2,000 Manufacturing Overhead $2,000
c. Cost of Goods Sold $5,000 Manufacturing Overhead $5,000
d. Manufacturing Overhead $5,000 Cost of Goods Sold $5,000
e. Cost of Goods Sold $3,000 Manufacturing Overhead $3,000

Answer 1

The correct journal entry for a small amount of over-applied manufacturing overhead is a debit to Manufacturing Overhead and a credit to Cost of Goods Sold for the difference, which is $3,000 in this case.

Step-by-step explanation:

The student's question pertains to the adjustment journal entry for the under- or over-applied manufacturing overhead when the amount is considered small. To determine the correct entry, one must calculate the difference between the Applied Manufacturing Overhead and the Actual Manufacturing Overhead. In this case, the Applied Manufacturing Overhead is $118,000, and the Actual Manufacturing Overhead is $115,000, which results in a $3,000 difference. Because this amount is considered small, it is directly adjusted against the Cost of Goods Sold (COGS).

The correct journal entry to record the overhead adjustment would be a debit to Manufacturing Overhead and a credit to COGS, reflecting that the overhead was over-applied by $3,000. Therefore, the correct answer is: Manufacturing Overhead $3,000 Cost of Goods Sold $3,000.