Problem 10 Sanger Enterprises’ applies overhead based on direct labor cost. Othe
ID: 2444422 • Letter: P
Question
Problem 10 Sanger Enterprises’ applies overhead based on direct labor cost. Other accounts showed the following balances for the year ending December 31:
Raw materials
$21,000
Sales
$993,000
Cost of goods sold
620,540
Income tax expense
78,000
Work in process
55,000
Manufacturing overhead (debit)
2,100
Operating expenses
122,000
Finished goods
24,000
A. Circle the account name(s) to which the overapplied overhead will be closed if this amount is considered material. Why is/are this/these account(s) chosen?
B. How much will be reported as gross profit after disposing of the under or overapplied amount if it is considered to be immaterial?
C. In good form, show and properly label which product costs would appear on the balance sheet at the end of December in the space provided. Be sure to label which section they go in (be specific) and show respective amounts.
Balance Sheet
$
Raw materials
$21,000
Sales
$993,000
Cost of goods sold
620,540
Income tax expense
78,000
Work in process
55,000
Manufacturing overhead (debit)
2,100
Operating expenses
122,000
Finished goods
24,000
Explanation / Answer
Problem 10 Sanger Enterprises’ applies overhead based on direct labor cost. Other accounts showed the following balances for the year ending December 31: Raw materials 21000 Sales 993,000 Cost of goods sold 620540 Income tax expense 78,000 Work in process 55000 Manufacturing overhead (debit) 2,100 Operating expenses 122000 Finished goods 24,000 A Circle the account name(s) to which the overapplied overhead will be closed if this amount is considered material. Why is/are this/these account(s) chosen? The overapplied overhead would be closed to 'Cost of Goods sold' account. Ans Overapplied overhead happens when the estimated overhead that was allocated to jobs during the period is actually more than the actual overhead costs that were incurred during the production process A journal entry must be made at the end of the period to reconcile the difference between the estimated amount and the actual overhead costs. In this case we would, debit the factory overhead account and credit the cost of goods sold account for the difference B How much will be reported as gross profit after disposing of the under or overapplied amount if it is considered to be immaterial? Ans Gross Profit 374,560 Sales - (COGS - Mfg OH) C In good form, show and properly label which product costs would appear on the balance sheet at the end of December in the space provided. Be sure to label which section they go in (be specific) and show respective amounts Balance Sheet Assets Fixed Assets 95,560 (Balancing figure) Finished goods 24,000 Work in process 55000 Total 79,000 Liabilities & Equity P/L 174,560 Gross profit - Operating Expenses - Income Tax Total 174,560
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