Question

A firm incurs $35,000,000 of actual OH costs. It has a PDOH rate of $450 per machine hour and 100,000 machine hours were actually consumed during the period. The firm has 0 units in beginning WIP, it started 250 units and completed 230 units. Only 15 completed units are still waiting for the sales to be finalized (i.e. not "sold" yet).
Which of the following is a feasible journal entry to close the Overhead Control account at the end of the period?

a.
Debit: Cost of Goods Sold $10,000,000

Credit: Overhead Control $10,000,000

b.
Debit: WIP $800,000

Debit: Finished Goods $600,000

Debit: Cost of Goods Sold $8,600,000

Credit: Overhead Control $10,000,000

c.
Debit: Overhead Control $10,000,000

Credit: Cost of Goods Sold $10,000,000

d.
Debit: Overhead Control $10,000,000

Credit: WIP $3,333,333

Credit: Finished Goods $3,333,333

Credit: Cost of Goods Sold $3,333,334

Answer 1

Answer:

c.  Debit: Overhead Control $10,000,000  

Credit: Cost of Goods Sold $10,000,000

Explanation:

The journal entry to close the overhead account is presented below:

Overhead Control A/c Dr $10,000,000

       To Cost of Goods Sold A/c  $10,000,000

(Being the overhead account is closed)

The computation is shown below:

= Applied overhead - actual overhead

where,

Applied overhead equal to

= $450 × 100,000 machine hours

= $45,000,000

And, the actual overhead is $35,000,000

So, the amount would be

= $45,000,000 - $35,000,000

= $10,000,000

Since the applied overhead is greater than the actual overhead, so we debited the overhead control account and credited the cost of goods sold account