Question

Aspen Company estimates its manufacturing overhead to be $515,000 and its direct labor costs to be $515,000 for year 2. Aspen worked on three jobs for the year. Job 2-1, which was sold during year 2, had actual direct labor costs of $221,400. Job 2-2, which was completed, but not sold at the end of the year, had actual direct labor costs of $459,200. Job 2-3, which is still in work-in-process inventory, had actual direct labor costs of $139,400. Actual manufacturing overhead for year 2 was $805,900. Manufacturing overhead is applied on the basis of direct labor costs. Required: Prepare an entry to allocate over- or underapplied overhead to Work in Process, Finished Goods and Cost of Goods Sold. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Answer:

COGS    3807 debit

FG          7896 debit

WIP         2397 debit

  Factory Overhead  14,100 credit

--to record the underapplication of overhead--

Explanation:

overhead rate:

$\frac{Cost\: Of \:Manufacturing \:Overhead}{Cost \:Driver}= Overhead \:Rate$

$515,000 overhead /  515,000 labor cost = $1

each labor cost generates a dollar of overhead.

221,400 x 1 =   221,400 overhead in COGS

459,200 x 1 = 459,200 overhead in Finished Goods

139,400 x 1 =   139,400 overhead in WIP inventory

Total applied  820,000

Actual            805,900

Underapplied    14,100

Now we weight each concept and determiante the portion underapplocated in each concept

$\left[\begin{array}{cccc}Item&Value&Weight&Allocated\\COGS&221400&0.27&3807\\FG&459200&0.56&7896\\WIP&139400&0.17&2397\\&&&\\Total&820000&1&14100\\\end{array}\right]$