Question

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

Manufacturing Overhead

(a)	460,000		(b)	510,000
			Bal.	50,000

Work in Progress

Bal.	125,000		(c)	860,000
	230,000
	135,000
(b)	510,000
Bal.	140,000

Finished Goods

Bal.	190,000		(d)	910,000
(c)	860,000
Bal.	140,000

Cost of Goods Sold

(d)	910,000

The overhead applied to production during the year is distributed among the ending balances in the accounts as follows:

Work in Process, ending	$	51,000
Finished Goods, ending		76,500
Cost of Goods Sold		382,500
Overhead applied	$	510,000

For example, of the $140,000 ending balance in Work in Process, $51,000 was overhead applied during the year.

Required:

1.	Identify the reasons for entries (a) through (d).

       

2.

The company allocates any balance in the Manufacturing Overhead account to the other accounts in proportion to the overhead applied during the year that is in the ending balance in each account. Prepare the necessary journal entry. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

       

Answer 1

Req 1: Reasons for entries are as follows:

a. Manufacturing overheads account is debited with the amount of manufacturing overheads actually incurred during the year.

b. Manufacturing overheads credited and debited to work in process means the overheads has been applied to work in process inventory.

c. Finished goods inventory debited and work in process credited means the cost of goods manufactured shifted from work in process to finished goods inventory.

d. Cost of goods sold debited andd finished goods inventory credited means the the finished goods inventory reduced for cost of goods sold which increases the balance of cost of goods sold.

Req 2:

Allocation of balalnce of manufacturing overhead balance of $ 50,000 shall be as under:

Work in process (51000 /510,000 * 50000) = $5,000

Finished Goods inventory (76500 /510,000 *50000) = $7,500

Cost of goods sold (382,500 /510,000 *50000) = $ 37500

The journal entry shall be as under:

Work in process inventory Account Dr.    $5,000

Finished goods inventory Account Dr.     $7500

Cost of goods sold Account Dr.               $37,500

        Manufacturing overheads account                    $50,000