Cost Accoutning
Cost accounting 4-37 General ledger relationships, under- and overallocation.
The solution assumes all materials used are direct materials. A summary of the T-accounts for
Needham Company before adjusting for under- or overallocation of overhead follows:
Direct Materials Control Work-in-Process Control
1-1-2008 30,000
Purchases 400,000
Material used for manufacturing 380,000
1-1-2008 20,000
Direct materials 380,000
Transferred to finished goods 940,000
12-31-2008 50,000 Direct manuf.
Labor 360,000
Manuf. overhead allocated 480,000
12-31-2008 300,000
Finished Goods Control Cost of Goods Sold
1-1-2008 10,000
Transferred in from WIP 940,000
Cost of goods sold 900,000
Finished goods sold 900,000
12-31-2008 50,000
Manufacturing Overhead Control Manufacturing Overhead Allocated
Manufacturing
overhead costs 540,000
Manufacturing
overhead allocated to work in process 480,000
1. From Direct Materials Control T-account,
Direct materials issued to production = $380,000 that appears as a credit.
2. Direct manufacturing labor-hours =
Direct manufacturing labor costs
Direct manufacturing wage rate per hour
=
$360,
$15 per ho
000
ur
= 24,000 hours
Manufacturing overhead allocated = Direct manufacturing labor hours × Manufacturing overhead rate
= 24,000 hours × $20 per hour = $480,000
3. From the debit entry to Finished Goods T-account,
Cost of jobs completed and transferred from WIP = $940,000
4. From Work-in-Process T-account,
Work in process inventory on 12/31/2008 = $20,000 + $380,000 + $360,000 + $480,000 – $940,000
= $300,000
5. From the credit entry to Finished Goods Control T-account, Cost of goods sold (before proration) = $900,000
6.
Manufacturing overhead underallocated =
Debits to Manufacturing
Overhead Control –
Credit to Manufacturing
Overhead Allocated
= $540,000 – $480,000
= $60,000 underallocated
7. a. Write-off to Cost of Goods Sold will increase (debit) Cost of Goods Sold by $60,000.
Hence,
The solution assumes all materials used are direct materials. A summary of the T-accounts for
Needham Company before adjusting for under- or overallocation of overhead follows:
Direct Materials Control Work-in-Process Control
1-1-2008 30,000
Purchases 400,000
Material used for manufacturing 380,000
1-1-2008 20,000
Direct materials 380,000
Transferred to finished goods 940,000
12-31-2008 50,000 Direct manuf.
Labor 360,000
Manuf. overhead allocated 480,000
12-31-2008 300,000
Finished Goods Control Cost of Goods Sold
1-1-2008 10,000
Transferred in from WIP 940,000
Cost of goods sold 900,000
Finished goods sold 900,000
12-31-2008 50,000
Manufacturing Overhead Control Manufacturing Overhead Allocated
Manufacturing
overhead costs 540,000
Manufacturing
overhead allocated to work in process 480,000
1. From Direct Materials Control T-account,
Direct materials issued to production = $380,000 that appears as a credit.
2. Direct manufacturing labor-hours =
Direct manufacturing labor costs
Direct manufacturing wage rate per hour
=
$360,
$15 per ho
000
ur
= 24,000 hours
Manufacturing overhead allocated = Direct manufacturing labor hours × Manufacturing overhead rate
= 24,000 hours × $20 per hour = $480,000
3. From the debit entry to Finished Goods T-account,
Cost of jobs completed and transferred from WIP = $940,000
4. From Work-in-Process T-account,
Work in process inventory on 12/31/2008 = $20,000 + $380,000 + $360,000 + $480,000 – $940,000
= $300,000
5. From the credit entry to Finished Goods Control T-account, Cost of goods sold (before proration) = $900,000
6.
Manufacturing overhead underallocated =
Debits to Manufacturing
Overhead Control –
Credit to Manufacturing
Overhead Allocated
= $540,000 – $480,000
= $60,000 underallocated
7. a. Write-off to Cost of Goods Sold will increase (debit) Cost of Goods Sold by $60,000.
Hence,