Applied vs$.$ Actual Manufacturing Overhead

Davis Manufacturing Corporation applies manufacturing overhead on the basis of $140\%$ of direct labor cost. An analysis of the related accounts and job order cost sheet indicates that during the year total manufacturing overhead incurred was $$315,000$ and that at year$-$end Work in Process Inventory, Finished Goods Inventory, and Cost of Goods Sold included $$40,000,$ $$20,000,$ and $$140,000,$ respectively, of direct labor incurred during the current year.

a$.$ Determine the under applied manufacturing overhead at year$-$end $($assume it is significant$).$

Applied Manufacturing Overhead

Work in process Answer

$150,000$

Finished goods Answer

$75,000$

Cost of goods sold Answer

$525,000$

Total: Answer

$750,000$

Under$-$applied manufacturing overhead $Answer

$37,500$

b$.$ Prepare a journal entry to record the disposition of the underapplied manufacturing overhead.

General Journal

Description Debit Credit

Answer

Work in process inventory

Answer

$3,000$

Answer

$0$

Answer

Finished goods inventory

Answer

$1,500$

Answer

$0$

Answer

Cost of goods sold

Answer

$10,500$

Answer

$0$

Answer

Manufacturing overhead

Answer

$0$

Answer

$15,000$