Final answer:
The correct journal entry for the overapplied manufacturing overhead is to debit Manufacturing Overhead and credit Cost of Goods Sold by $12,000. In normal costing, Work in Process would use applied overhead, not actual overhead.
So, the correct answer is B) applied overhead.
Step-by-step explanation:
If the Cherokee Company has an overapplied manufacturing overhead of $12,000 and it is considered material, the journal entry to adjust for overapplied overhead would prorate the amount among Work in Process, Finished Goods, and Cost of Goods Sold based on their respective balances.
However, as per the given options, the correct journal entry that aligns with the traditional approach to resolve overapplication (when no information is provided about the proration basis) is to debit Manufacturing Overhead and credit Cost of Goods Sold entirely. Hence, the correct journal entry is:
- Manufacturing Overhead $12,000
- Cost of Goods Sold $12,000
This entry reflects the decrease in Manufacturing Overhead and the corresponding decrease in Cost of Goods Sold, because the overhead has been overapplied during the period.
For the part of the question regarding normal costing in work in process, normal costing involves using applied overhead rather than actual overhead. This means that the overhead cost allocated to Work in Process Inventory is based on the predetermined overhead rate, not the actual overhead incurred.
So, the correct answer is B) applied overhead.
Complete question:
The Cherokee Company uses a predetermined overhead rate. The following accounts have these unadjusted balances:
Raw materials $20,000
Work in Process $40,000
Finished Goods $10,000
Cost of Goods Sold $50,000
If Manufacturing overhead was $12,000 overapplied and considered material, what is the journal entry?
a. Manufacturing Overhead $12,000
Work in Process $4,800
Finished Goods $1,200
Cost of Goods Sold $6,000
b. Cost of Goods Sold $12,000
Manufacturing Overhead $12,000
C. Manufacturing Overhead $12,000
Cost of Goods Sold $12,000
d. Raw Materials $2,000
Work in Process $4,000
Finished Goods $1,000
Manufacturing Overhead $12,000
e. Manufacturing Overhead $12,000
Raw Materials $2,000
Work in Process $4,000
Finished Goods $1,000
Cost of Goods Sold $5,000
Normal costing uses which cost in work in process?
a. applied direct materials
b. applied overhead
c. budgeted overhead
d. actual overhead