Question

The following information was gathered for Zeba Company for the year ended December 31, 2020:

	Budgeted	Actual
Direct labor-hours	50,000 DL-hr	60,000 DL-hr
Factory overhead	$550,000	$600,000

Assume that the cost-allocation base is direct labor-hours.

The journal entry to write off over-/under-allocated overhead at year end is:

Group of answer choices

DR Manufacturing overhead allocated                   $660,000

                              CR Cost of Goods Sold $ 60,000

                              CR Manufacturing overhead control (actual)                      $600,000

DR Manufacturing overhead allocated                   $550,000

DR Cost of Goods Sold $ 50,000

                              CR Manufacturing overhead control (actual)                      $600,000

DR Manufacturing overhead allocated $600,000

                              CR Cost of Goods Sold $ 50,000                           

CR Manufacturing overhead control (actual) $550,000

DR Manufacturing overhead allocated                   $500,000

DR Cost of Goods Sold $100,000

                              CR Manufacturing overhead control (actual)                      $600,000

Answer 1

Factory Overhead Allocation Rate = Budgeted factory overhead/Direct labour hours

Budgeted factory overhead = $ 550000

Direct labour hours              = 50000

Factory Overhead Allocation Rate = $ 550000/50000 = $ 11 per Direct labour hour

Actual Factory Overhead Allocated = Actual Direct Labour Hours * Overhead rate

                                                   = 60000*11 =$ 660000

Actual Factory Overhead = $ 600000

Over absorbtion of overhead = Overhead Allocated - Actual Overhead

= 660000 - 60000 = $ 60000

The over absorbed overheads is closed and transfers the same to the cost of goods sold account By debiting cost of goods sold account.

So the correct Journal entry is:

DR Manufacturing overhead allocated                   $660,000

                              CR Cost of Goods Sold $ 60,000

                              CR Manufacturing overhead control (actual)                      $600,000