Question

The following information is taken from the accounts of Latta Company. The entries in the T-accounts are summaries of the transactions that affected those accounts during the year.
Manufacturing Overhead Work in Process
(a) 460,000 (b) 390,000 Bal. 15,000 (c) 710,000
260,000
Bal. 70,000 85,000
(b) 390,000
Bal. 40,000
Finished Goods Cost of Goods Sold
Bal. 50,000 (c) 640,000 (d) 640,000
(c) 640,000
Bal. 120,000
The overhead that had been applied to production during the year is distributed among the ending balances in the accounts as follows:______.
Work in Process, ending $ 19,500
Finished Goods, ending 58,500
Cost of Goods Sold 312,000
Overhead applied $ 390,000
For example, of the $40,000 ending balance in work in process, $19,500 was overhead that had been applied during the year.
Required:
1. Identify reasons for entries (a) through (d).
2. Assume that the underapplied or overapplied overhead is closed to Cost of Goods Sold. Prepare the necessary journal entry.
3. Assume that the underapplied or overapplied overhead is closed proportionally to Work in Process, Finished Goods, and Cost of Goods Sold. Prepare the necessary journal entry.

Answer 1

Answer:

Latta Company

1.

(a) is the Actual Manufacturing Overhead Expense incurred for the year.

(b) is the Manufacturing overhead applied to Work in Process for the year.

(c) is the Cost of goods manufactured for the year.

(d) is the Cost of goods sold for the year.

2. Debit Cost of Goods Sold $70,000

   Credit Manufacturing Overhead $70,000

   To close the underapplied overhead to cost of goods sold.

3. Debit Work in Process $3,500

             Finished Goods $10,500

             Cost of goods sold $56,000

  Credit Manufacturing Overhead $70,000

  To close the underapplied overhead to the 3 accounts.

Explanation:

a) Data and Calculations:

1. T-accounts:

Manufacturing Overhead

       Debit            Credit                      

(a) 460,000 (b) 390,000                      

                    Bal. 70,000

Work in Process

       Debit            Credit  

Bal.   15,000   (c) 710,000

     260,000

        85,000

(b) 390,000

                     Bal. 40,000

Finished Goods

       Debit            Credit  

Bal.   50,000  (d) 640,000

(c)   710,000

                     Bal. 120,000

Cost of Goods Sold

       Debit            Credit  

(d) 640,000

2. Distribution of overhead applied to production:

Work in Process, ending $ 19,500

Finished Goods, ending    58,500

Cost of Goods Sold          312,000

Overhead applied        $ 390,000

3.  Allocation of Underapplied:

Work in Process, ending    $3,500 (19,500/390,000 * 70,000)

Finished Goods, ending      10,500 (58,500/390,000 * 70,000)

Cost of Goods Sold           56,000 (312,000/390,000 * 70,000)

Underapplied overhead  $70,000