Question

Briton Inc. has two processes—Coloring Department and Mixing Department. Briton sold 350 gallons on account at $110 per gallon. The total cost of processing was $385,000 for 5,500 gallons of paint. Throughout the year, the company used a predetermined overhead allocation rate to allocate $75,000 and $65,000 of indirect costs to the Coloring Department and Mixing Department, respectively. The actual overhead cost incurred amounted to $150,000 at the end of the year. Record the necessary journal entries for the sale of goods and for adjustment of over- or under-allocated manufacturing overhead at the end of the year. Briton uses the perpetual inventory system and process costing.

Answer 1

General Journal	Debit	Credit
Accounts Receivable (350 gallons @ $110)	$38,500
Sales Revenue		$38,500
(To record sales on account)
Cost of Goods Sold ($70 * 350 gallons)	$24,500
Finished Goods Inventory		$24,500
(To record cost of goods sold)
Per gallon cost = Total Processing Cost $385,000 / 5,500 gallons = $70)
Cost of Goods Sold (Refer Note 1)	$10,000
Manufacturing Overheads (Under Applied)		$10,000
(To close under applied overheads)

Note 1 - Calculation of Over or Under Applied Overheads

Actual Overheads incurred = $150,000

Allocated Overheads = $75,000 + $65,000 = $140,000

Allocated or applied overheads are less than actual incurred overheads. It means overheads are Under Applied by $10,000 ($150,000 – 140,000)

Assumed the amount is immaterial, so this under applied overheads closed to cost of goods sold account.

Hope the above calculations, working and explanations are clear to you and help you to understand the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you