Question

Exercise 3-8 Applying Overhead; Journal Entries; Disposing of Underapplied or Overapplied Overhead [LO3-1, LO3-2, LO3-4] 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 (a) 499,968 (b) 416,640 Bal. 83,328 Work in Process Bal. 5,360 (c) 778,000 319,500 93,500 (b) 416,640 Bal. 57,000 Finished Goods Bal. 33,000 (d) 674,000 (c) 778,000 Bal. 137,000 Cost of Goods Sold (d) 674,000 The overhead that had been applied to production during the year is distributed among Work in Process, Finished Goods, and Cost of Goods Sold as of the end of the year as follows:

Work in Process, ending $ 27,360
Finished Goods, ending 65,760
Cost of Goods Sold 323,520
Overhead applied $ 416,640
For example, of the $57,000 ending balance in work in process, $27,360 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

1. a would be the Actual Manufacturing cost for the year

b would be the Manufacturing Overhead applied to the Work in Process

c is the Cost of Goods Manufactured in the year

d is the Cost of Goods Sold as shown in the same named account.

2.

DR Cost of Goods Sold $83,328

CR Manufacturing Overhead $83,328

3.

DR Work in Process $‭5,472‬

Finished Goods $‭13,152‬

Cost of Goods sold $‭64,704‬

CR Manufacturing Overhead $83,328

Working

Overhead is distributed as follows;

Work in process = 27,360/ 416,640 * 83,328 = $‭5,472‬

Finished Goods = 65,760/ 416,640 * 83,328 = $‭13,152‬

Cost of Goods sold = 323,520/416,640 * 83,328 = $‭64,704‬