Aspen Company estimates its manufacturing overhead to be $646,250 and its direct

Question

Aspen Company estimates its manufacturing overhead to be $646,250 and its direct labor costs to be $517,000 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 $151,064. Job 2-2, which was completed, but not sold at the end of the year, had actual direct labor costs of $380,944. Job 2-3, which is still in work-in-process inventory, had actual direct labor costs of $124,792. Actual manufacturing overhead for year 2 was $806,700. 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.) 8 Answer is not complete. Debit Credit Transaction General Journal No 14,3002,717 Applied manufacturing overhead Cost of good sold Finished goods inventory Work-in-process inventory 8,294 3,289

Explanation / Answer

Manufacturing overhead rate

= Estimated manufacutring overhead/Direct labor cost

= $646,250/$517,000

= 125% of direct labor cost

Manufacutring overhead applied to the Jobs:

Job 2-1 = Actual direct labor cost x Overhead rate = $151,064 x 125% = $188,830

Job 2-2 = Actual direct labor cost x Overhead rate = $380,944 x 125% = $476,180

Job 2-3 = Actual direct labor cost x Overhead rate = $124,792 x 125% = $155,990

Total overhead applied = $188,830 + $476,180 + $155,990 = $821,000

Actual overhead cost = 806,700

Therefore,

Overaplied overhead = $821,000 - $806,700 = $14,300

The overapplied overhead will be credited to cost of goods sold, finished goods inventory, and work in process inventory in the ratio of direct labor used by each.

Job 2-1 was sold during the year. Therefore, the cost of Job 2-1 will be considered as cost of goods sold.

Thus,

Overhead to be credited to cost of goods sold = $14,300 x 151,064/(151,064+380,944+124,792) = $3,289

Job 2-2 was completed but not sold. Therefore, the cost of Job 2-2 will be considered as finished goods inventory.

Thus,

Overhead to be credited to finished goods inventory = $14,300 x 380,944/(151,064+380,944+124,792) = $8,294

The remaining overapplied overhead that is $2,717 ($14,300 - $3,289 - $8,294) will be credited to work in process inventory.

Prepare the journal entry as follows:

Number Transaction General Journal Debit Credit 1 1 Applied Manufacturing Overhead 14300       Cost of goods sold 3289       Finished goods inventory 8294       Work in process inventory 2717

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