Question

Aspen Company estimates its manufacturing overhead to be $515,000 and its direct labor costs to be $515,000 for year 2. Aspen worked on three jobs for the year. Job 2-1, which was sold during year 2, had actual direct labor costs of $221,400. Job 2-2, which was completed, but not sold at the end of the year, had actual direct labor costs of $459,200. Job 2-3, which is still in work-in-process inventory, had actual direct labor costs of $139,400. Actual manufacturing overhead for year 2 was $805,900. Manufacturing overhead is applied on the basis of direct labor costs. Required: Prepare an entry to allocate over- or underapplied overhead to Work in Process, Finished Goods and Cost of Goods Sold. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

COGS 3807 debit

FG 7896 debit

WIP 2397 debit

Factory Overhead 14,100 credit

--to record the underapplication of overhead--

Step-by-step explanation:

overhead rate:

`(Cost\: Of \:Manufacturing \:Overhead)/(Cost \:Driver)= Overhead \:Rate`

$515,000 overhead / 515,000 labor cost = $1

each labor cost generates a dollar of overhead.

221,400 x 1 = 221,400 overhead in COGS

459,200 x 1 = 459,200 overhead in Finished Goods

139,400 x 1 = 139,400 overhead in WIP inventory

Total applied 820,000

Actual 805,900

Underapplied 14,100

Now we weight each concept and determiante the portion underapplocated in each concept

`\left[\begin{array}{cccc}Item&Value&Weight&Allocated\\COGS&221400&0.27&3807\\FG&459200&0.56&7896\\WIP&139400&0.17&2397\\&&&\\Total&820000&1&14100\\\end{array}\right]`