Response:
See the solution below
Clarification:
a. Calculate whether overhead is underapplied or overapplied
Initially, we must find the predetermined overhead rate.
Predetermined overhead rate = Expected total manufacturing overhead / Expected total machine hours
= $900,000 / 75,000 hours
= $12.0 hourly
However;
The actual manufacturing overhead stands at $637,000
The manufacturing overhead allocated to work in process this year = 76,000 actual MH × $12.00 per MH = $912,000
The amount of overapplied overhead cost equals $275,000
b. Journal entry
Cost of goods sold Dr $275,000
To Manufacturing overhead applied Cr $275,000
c. The excess overhead will be distributed based on the following ratios;
<papplied overhead="" for="" the="" year="">
Work in process = $36,480. 6%
Finished goods = $91,200. 15%
Cost of goods sold = $480,320 79%
Total = $608,000 100%
The entry to capture the overhead allocation would include;
Work in process [6% × $275,000] = $16,500
Finished goods [15% × $275,000] = $41,250
Cost of goods sold [79% × $275,000] = $217,250
d. A comparison of both methods;
Cost of goods sold, if the overapplied overhead is closed to cost of goods sold [$1,524,700 + $275,000] results in $1,799,700
Cost of goods sold when the applied overhead is allocated to work in process, finished goods, and cost of goods sold = [$1,524,700 + $217,250] =
$1,741,950
The variance in cost of goods sold amounts to $57,750
</papplied>
