Renewable Energy Manufacturing Ltd is a leading manufacturer of solar panels.

The following data are taken from its accounting records for the financial year ending 31 December 2022:

	$
Sales	4,425,000
Purchases of raw material	1,500,000
Direct labour cost incurred	1,050,000
Other selling and administrative expenses	180,000
Indirect labour cost (60% for factory; 40% for selling & admin)	600,000
Other manufacturing expenses	225,000
Depreciation of building (75% for factory; 25% for selling & admin)	300,000
Depreciation of equipment (85% for factory; 15% for selling & admin)	240,000
Income tax expense	60,000
Indirect material used (all for factory)	45,000
Insurance on factory & equipment (90% for factory; 10% for selling & admin)	75,000
Electricity (80% for factory; 20% for selling & admin)	150,000
Raw material inventory, 1 January 2022	120,000
Raw material inventory, 31 December 2022	90,000
Work in process, 1 January 2022	30,000
Work in process, 31 December 2022	45,000
Finished goods inventory, 1 January 2022	75,000
Finished goods inventory, 31 December 2022	105,000

The company uses normal costing and manufacturing overhead is applied at the rate of 125% of direct labour cost.

(g) Prepare the journal entry to close off the balance in the manufacturing overhead account if Renewable Energy Manufacturing Ltd closed off the manufacturing overhead variance by pro-rating the amount to the work in process, finished goods inventory and cost of goods sold. (8 marks)

(h) Explain the effect on profit between the two methods of closing off the manufacturing overhead described in (d) and (g). (5 marks)