Figure 4-5 The Hampshire Company produces 9 volt batteries and AAA batteries.The Hampshire Company uses a plantwide rate to apply overhead based on direct labor hours.The following data is given:

- Refer to Figure 4-5.If the accounts had the following balances, how much will cost of goods sold be adjusted?

Question

Figure 4-5 The Hampshire Company produces 9 volt batteries and AAA batteries.The Hampshire Company uses a plantwide rate to apply overhead based on direct labor hours.The following data is given:

- Refer to Figure 4-5.If the accounts had the following balances, how much will cost of goods sold be adjusted?

Quizplus · Accepted Answer

To calculate the adjustment to the Cost of Goods Sold (COGS) account, we need to compare the actual overhead cost incurred during the year to the overhead cost applied using the plantwide rate.

Actual overhead cost = $531,250

Overhead rate = Total estimated overhead cost / Total estimated direct labor hours 
= ($2,250,000 + $650,000) / (150,000 + 5,000) 
= $14.50 per direct labor hour

Overhead cost applied = Overhead rate x Actual direct labor hours 
= $14.50 x 35,000 
= $507,500

Adjustment to COGS = Actual overhead cost - Overhead cost applied 
= $531,250 - $507,500 
= $23,750

Since the actual overhead cost is greater than the overhead cost applied, we need to credit the overhead control account and debit the COGS account for the adjustment amount.

Therefore, the correct answer is C) Credit $26,562.50. This amount includes the adjustment to COGS and the reversal of the applied overhead amount previously credited to the overhead control account.

Figure 4-5 the Hampshire Company Produces 9 Volt Batteries and AAA