Q.17-21E-c - Horngren'S Financial And Managerial Accounting

Question

The manufacturing records for Sporty Kayaks at the end of the 2018 fiscal year show the following information about manufacturing overhead:

Overhead allocated to production	\(409,200
Actual manufacturing overhead cost	432,000
Predetermined overhead allocation rate	\)44 per machine hours

Requirements

3. Prepare the journal entry to adjust for the underallocated or overallocated manufacturing overhead.

Step-by-Step Solution

Answer

Date	Particulars	Debit($)	Credit ($)
	Cost of goods sold	22,800
	Manufacturing overhead		22,800

Cost of goods sold

Cost of goods sold means the total expenses incurred in manufacturing the products that are sold by the company in the market.

Underallocation of overhead

$$\begin{gathered} \mathbf{under}\mathbf{ }\mathbf{allocated}\mathbf{ }\mathbf{overhead}\mathbf{ }\mathbf{=}\mathbf{ }\mathbf{actual}\mathbf{ }\mathbf{overhead}\mathbf{ }\mathbf{-}\mathbf{ }\mathbf{allocated}\mathbf{ }\mathbf{overhead} \\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{432}\mathbf{,}\mathbf{000}\mathbf{ }\mathbf{-}\mathbf{ }\mathbf{\$}\mathbf{409}\mathbf{,}\mathbf{200} \\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{22}\mathbf{,}\mathbf{800} \end{gathered}$$

The underallocated overhead is recorded by debiting the cost of goods sold and by crediting the manufacturing overhead account in the books of accounts of the company.