Dillon Corporation applies manufacturing overhead to jobs using a predetermined overhead rate of 75% of direct labor cost. Any under or overapplied manufacturing overhead cost is closed out to Cost of Goods Sold at the end of the month. During May, the following transactions were recorded by the company: The entry to dispose of the under or overapplied manufacturing overhead cost for the month would include:

Question

Dillon Corporation applies manufacturing overhead to jobs using a predetermined overhead rate of 75% of direct labor cost. Any under or overapplied manufacturing overhead cost is closed out to Cost of Goods Sold at the end of the month. During May, the following transactions were recorded by the company:  The entry to dispose of the under or overapplied manufacturing overhead cost for the month would include:

Quizplus · Accepted Answer

If the predetermined overhead rate was greater than the actual overhead cost incurred during the month, there would be an overapplied manufacturing overhead cost. Conversely, if the actual overhead cost incurred during the month was greater than the predetermined overhead rate, there would be an underapplied manufacturing overhead cost. In this case, there is no information provided on whether there is over or underapplied manufacturing overhead. However, the entry to dispose of the under or overapplied manufacturing overhead cost would include a debit to Cost of Goods Sold for the amount of the overapplied manufacturing overhead cost or a credit to Cost of Goods Sold for the amount of the underapplied manufacturing overhead cost. Therefore, option C (a debit of $2,000 to Cost of Goods Sold) is the best choice because it shows the disposal of any under or overapplied manufacturing overhead cost at the end of the month.

Dillon Corporation Applies Manufacturing Overhead to Jobs Using a Predetermined