Answer:
Part (1) Calculate the under applied or over applied overhead.
Manufacturing overhead incurred is $1,029,000. Applied overhead is $884,000.
Under applied overhead = Manufacturing overhead incurred — Applied overhead
Under applied overhead = $1,029,000 - $884,000
Under applied overhead = $145,000
Note:
Applied overhead= (Applied overhead in WIP) + (Applied overhead in Finished goods) + (Applied overhead in cost good sold)
Applied overhead = $88,400 + 0132,600 + 6663,000
Applied overhead = $884,000
Part (2) Record the journal entry for under or over applied overhead to cost of goods sold.
(To record the under applied overhead transferred to cost of goods sold)
Debit: Cost of goods sold = $145,000
Credit: Manufacturing overhead = $145,000
Part (3) Record the journal entry for proportional allocation of under or over applied overhead to WIP, finished goods and cost of goods sold.
Debit: Work-in-process ($145000 × $88400 ÷ $884,000) = $14500
Debit: Finished goods ($145000 × $132600 ÷ $884000) = $21750
Debit: Cost of goods sold ($145000 × $663,000 ÷ $884,000) = $108750
Credit: Manufacturing overhead = $145000
(To record under or over applied overhead transferred to WIP. finished goods and cost of goods sold)
Part (4)
The net operating profit will be increased to the extent of $36250 (14500 + 21750) if the under applied overhead is allocated to work-in-process, finished goods and cost of goods sold rather than being closed to cost of goods sold.
