5. See the following account balances for Drone, Inc. for 2018: Work in process

Question

5.

See the following account balances for Drone, Inc. for 2018:

Work in process $43,000 Debit

Finished goods $74,000 Debit

Cost of goods sold $110,000 Debit

Factory overhead $21,000 Debit

   Requirements:

a. Was factory overhead overapplied or underapplied in 2018? Explain your answer. (1 point)

b. Prepare the journal entry to dispose of the balance in factory overhead assuming the amount is immaterial. (2 points)

c. Prepare the journal entry to dispose of the balance in factory overhead using the allocation method. (3 points)

Explanation / Answer

Rreq a: Manufacturing overheads is having debit balance. Hence it is under-applied overheads. Under-applied OH = $ 21000 Req b: Journal entry for under-applied OH: Cost of goods sold Dr. 21000      Manufacturing Overheads 21000 Req c: Allocation of Under-applied OH: Inventory Balance Proportion Under-app Allocation of Overheads Under-app OH WIP inventory 43000 18.94% 21000 3977 FG inventory 74000 32.60% 21000 6846 Cost of goods sold 110000 48.46% 21000 10177 TOTAL 227000 100.00% 21000 21000 Journal entry for under-applied OH: Work in process inventory Dr. 3977 Finished Goods inventory Dr. 6846 Cost of goods sold Dr. 10177     Manufacturing Overheads 21000

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