Question

XYZ uses job costing. Actual manufacturing overhead for the period is $20,400 while allocated manufacturing overhead is $18,400. What entry will close the manufacturing overhead balance?

A. Debit the Manufacturing Overhead account and credit the Work-in-Process account for $2,000.
B. Debit the Cost of Goods Sold account and credit the Manufacturing Overhead account for $2,000.
C. Debit the Manufacturing Overhead account and credit the Cost of Goods Sold account for $2,000.
D. Debit the Cost of Goods Sold account and credit the Finished Goods Inventory account for $2,000.

Answer 1

The correct journal entry to close the manufacturing overhead balance when the actual manufacturing overhead exceeds the allocated overhead by $2,000 is to debit the Cost of Goods Sold and credit the Manufacturing Overhead account for the difference.

Step-by-step explanation:

The question involves the closing of the manufacturing overhead (MOH) balance in a job costing system for a company named XYZ. When the actual manufacturing overhead is higher than the allocated manufacturing overhead ($20,400 > $18,400), there is an under-applied overhead of $2,000.

This under-applied overhead needs to be adjusted. The correct journal entry for this adjustment is to debit the Cost of Goods Sold (COGS) and credit the Manufacturing Overhead account by the amount of the under-applied overhead, which is $2,000. Therefore, the correct entry is B. Debit the Cost of Goods Sold account and credit the Manufacturing Overhead account for $2,000, to correct the under-applied overhead.