Sigma Company has just finished its first year of operations and must decide whi

Question

Sigma Company has just finished its first year of operations and must decide which method to use for adjusting cost of goods sold. Because the company used a budgeted indirect-cost rate for its manufacturing operations, the amount that was allocated ($550,000) to cost of goods sold was different from the actual amount incurred ($510,000). Ending balances in the relevant accounts were: Work-in-Process$ 80,000 Finished Goods 120,000 Cost of Goods Sold 800,000 Instructions: Prepare a journal entry to write off the difference between allocated and actual overhead directly to Cost of Goods Sold. (1 mark) 1. Prepare a journal entry that prorates the write-off of the difference between allocated and actual overhead using ending account balances. (3 marks) 2.

Explanation / Answer

Allocated overhead 550,000 Actual amount of overhead 510,000 overhead over applied 40,000 1) Accounting titles & Explanations Debit Credit factory overhead 40,000 cost of goods sold 40,000 2) Accounting titles & Explanations Debit Credit Factory overhead 40,000 Work in process (40000/1000*80) 3200 finished goods (40000/1000*120) 4800 cost of goods sold (40000/1000*800) 32000

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