Buzzsaw Manufacturing incurred $267 200 of manufacturing overhead costs during the past year. However, only $232 000 of overhead was applied to production. At the conclusion of the year, the following amounts of the applied overhead remained in the various manufacturing accounts:
Work in process inventory…………………………….$46,400
Finished goods inventory………………………………81,200
Cost of goods sold……………………………………104,400
Required:
1. Explain whether the company has overapplied or underapplied its overhead to production.
2. Prepare a journal entry to close off the balance in the manufacturing overhead account and prorate the balance to the three manufacturing accounts.
3. What would be the effect on profit if the alternative method of closing off overhead were used?
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