Question

The following information is taken from the accounts of Latta Company. The entries in the T-accounts are summaries of the transactions that affected those accounts during the year.

Manufacturing Overhead Work in Process
(a) 460,000 (b) 390,000 Bal. 15,000 (c) 710,000
260,000
Bal. 70,000 85,000
(b) 390,000
Bal. 40,000
Finished Goods Cost of Goods Sold
Bal. 50,000 (c) 640,000 (d) 640,000
(c) 640,000
Bal. 120,000
The overhead that had been applied to production during the year is distributed among the ending balances in the accounts as follows:______.
Work in Process, ending $ 19,500
Finished Goods, ending 58,500
Cost of Goods Sold 312,000
Overhead applied $ 390,000
For example, of the $40,000 ending balance in work in process, $19,500 was overhead that had been applied during the year.
Required:
1. Identify reasons for entries (a) through (d).
2. Assume that the underapplied or overapplied overhead is closed to Cost of Goods Sold. Prepare the necessary journal entry.
3. Assume that the underapplied or overapplied overhead is closed proportionally to Work in Process, Finished Goods, and Cost of Goods Sold. Prepare the necessary journal entry.

Answer 1

Latta Company

1.

(a) is the Actual Manufacturing Overhead Expense incurred for the year.

(b) is the Manufacturing overhead applied to Work in Process for the year.

(c) is the Cost of goods manufactured for the year.

(d) is the Cost of goods sold for the year.

2. Debit Cost of Goods Sold $70,000

Credit Manufacturing Overhead $70,000

To close the underapplied overhead to cost of goods sold.

3. Debit Work in Process $3,500

Finished Goods $10,500

Cost of goods sold $56,000

Credit Manufacturing Overhead $70,000

To close the underapplied overhead to the 3 accounts.

Step-by-step explanation:

a) Data and Calculations:

1. T-accounts:

Manufacturing Overhead

Debit Credit

(a) 460,000 (b) 390,000

Bal. 70,000

Work in Process

Debit Credit

Bal. 15,000 (c) 710,000

260,000

85,000

(b) 390,000

Bal. 40,000

Finished Goods

Debit Credit

Bal. 50,000 (d) 640,000

(c) 710,000

Bal. 120,000

Cost of Goods Sold

Debit Credit

(d) 640,000

2. Distribution of overhead applied to production:

Work in Process, ending $ 19,500

Finished Goods, ending 58,500

Cost of Goods Sold 312,000

Overhead applied $ 390,000

3. Allocation of Underapplied:

Work in Process, ending $3,500 (19,500/390,000 * 70,000)

Finished Goods, ending 10,500 (58,500/390,000 * 70,000)

Cost of Goods Sold 56,000 (312,000/390,000 * 70,000)

Underapplied overhead $70,000