Figure 4-7 The Cherokee Company uses a predetermined overhead rate. The following accounts have these unadjusted balances:
Refer to Figure 4-7. If Manufacturing overhead was $12,000 overapplied and considered material, what is the journal entry?
A) Cost of Goods Sold $12,000 Manufacturing Overhead $12,000
B) Manufacturing Overhead $12,000 Cost of Goods Sold $12,000
C) Manufacturing Overhead $12,000 Raw Materials $2,000 Work in Process $4,000 Finished Goods $1,000 Cost of Goods Sold $5,000
D) Raw Materials $2,000 Work in process $4,000 Finished Goods $1,000 Cost of Goods Sold $5,000 Manufacturing Overhead $12,000
E) Manufacturing Overhead $12,000 Work in Process $4,800 Finished Goods $1,200 Cost of Goods Sold $6,000

Question

Figure 4-7 The Cherokee Company uses a predetermined overhead rate. The following accounts have these unadjusted balances:
 Refer to Figure 4-7. If Manufacturing overhead was $12,000 overapplied and considered material, what is the journal entry?
A) Cost of Goods Sold $12,000 Manufacturing Overhead $12,000 
B) Manufacturing Overhead $12,000 Cost of Goods Sold $12,000 
C) Manufacturing Overhead $12,000 Raw Materials $2,000 Work in Process $4,000 Finished Goods $1,000 Cost of Goods Sold $5,000 
D) Raw Materials $2,000 Work in process $4,000 Finished Goods $1,000 Cost of Goods Sold $5,000 Manufacturing Overhead $12,000 
E) Manufacturing Overhead $12,000 Work in Process $4,800 Finished Goods $1,200 Cost of Goods Sold $6,000

Quizplus · Accepted Answer

Since manufacturing overhead was overapplied, it means that too much overhead was allocated to the products, resulting in higher costs. Therefore, the overapplied amount needs to be reversed and debited to Cost of Goods Sold. The correct journal entry is to credit Manufacturing Overhead and debit Cost of Goods Sold for $12,000. However, since the overapplied amount is considered material, it also needs to be allocated back to the products based on the predetermined overhead rate. The allocation for Work in Process is $4,800 ($12,000 x 40%), for Finished Goods is $1,200 ($12,000 x 10%), and for Cost of Goods Sold is $6,000 ($12,000 x 50%). Therefore, the complete journal entry is to credit Manufacturing Overhead for $12,000 and to debit Work in Process for $4,800, Finished Goods for $1,200, and Cost of Goods Sold for $6,000.

Figure 4-7 the Cherokee Company Uses a Predetermined Overhead Rate