Question

Applied vs. Actual Manufacturing Overhead

Davis Manufacturing Corporation applies manufacturing overhead on the basis of 150% of direct labor cost. An analysis of the related accounts and job order cost sheet indicates that during the year total manufacturing overhead incurred was $787,500 and that at year-end Work in Process Inventory, Finished Goods Inventory, and Cost of Goods Sold included $100,000, $50,000, and $350,000, respectively, of direct labor incurred during the current year.

a. Determine the under applied manufacturing overhead at year-end (assume it is significant).

Applied Manufacturing Overhead
Work in process	Answer
Finished goods	Answer
Cost of goods sold	Answer
Total:	Answer

Under-applied manufacturing overhead $Answer

b. Prepare a journal entry to record the disposition of the underapplied manufacturing overhead.

General Journal
Description	Debit	Credit
AnswerManufacturing overheadWages expenseWages payableWork in process inventory	Answer	Answer
AnswerFinished goods inventoryManufacturing overheadWages expenseWages payable	Answer	Answer
AnswerCost of goods soldManufacturing overheadWages expenseWages payable	Answer	Answer
AnswerCost of goods soldFinished goods inventoryManufacturing overheadWork in process inventory	Answer	Answer

Answer 1

	Particulars	Applied Manufacturing Overhead (150% of direct labor cost )
	Work in process	$ 150,000 ( $ 100,000 x 150% )
	Finished goods	$ 75,000 ( $ 50,000 x 150% )
	Cost of goods sold	$ 525,000 ( $ 350,000 x 150% )
	Total Applied manufacturing overhead	$ 750,000
	Under-applied manufacturing overhead = Actual (-)Applied	$ 37,500 ( $ 787,500 (-) $ 750,000)
Date	Account Titles and Explanation	Debit	Credit
	Work in process ( $ 37,500 x $ 150,000 / $ 750,000)	$ 7,500
	Finished goods ( $ 37,500 x $ 75,000 / $ 750,000)	$ 3,750
	Cost of goods sold ( $ 37,500 x $ 525,000 / $ 750,000)	$ 26,250
	Manufacturing overhead		$ 37,500
	(To record the disposition of the underapplied manufacturing overhead)