Assume the following at the end of 2007 (in thousands): Cost of goods sold Direct materials inventory

Assume the following at the end of 2007 (in thousands):

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Cost of goods sold Direct materials inventory Work-in-process Finished goods $300 70 50 150 Factory department overhead control 60 cr. 1. Assume that the underapplied or overapplied overhead is regarded as an adjustment to cost of goods sold. Prepare the journal entry. 2. Assume that the underapplied or overapplied overhead is prorated among the appropriate accounts in proportion to their ending unad- justed balances. Show computations and prepare the journal entry. 3. Which adjustment, the one in requirement 1 or 2, would result in the higher gross profit? Explain, indicating the amount of the difference.