Q19E-d - Horngren'S Financial And Managerial Accounting

Question

Selected cost data for Classic Print Co. are as follows:

Estimated manufacturing overhead cost for the year	$125,000
Estimated direct labor cost for the year	78,125
Actual manufacturing overhead cost for the year	116,000
Actual direct labor cost for the year	67,000

Requirements

4. Prepare the journal entry to adjust for the under allocated or overallocated manufacturing overhead.

Step-by-Step Solution

Answer

Date	Particulars	Debit($)	Credit ($)
	Cost of goods sold	8,800
	Manufacturing overhead		8,800

Step 1: Underallocation overhead

Under allocation of overhead is defined as the situation in which the allocated overhead is less than the actual overhead incurred by the company during the year.

Step 2: The Underallocated overhead amount

$$\begin{gathered} \mathbf{Under}\mathbf{ }\mathbf{allocation}\mathbf{ }\mathbf{overhead}\mathbf{=}\mathbf{Actual}\mathbf{ }\mathbf{overhead}\mathbf{-}\mathbf{Allocated}\mathbf{ }\mathbf{overhead} \\ \mathbf{=}\mathbf{\$}\mathbf{116}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{\$}\mathbf{107}\mathbf{,}\mathbf{200} \\ \mathbf{=}\mathbf{\$}\mathbf{8}\mathbf{,}\mathbf{800} \end{gathered}$$

It is recorded in the books of the company by debiting the cost of goods sold and by crediting the manufacturing overhead.