M.A.E. charged the following amounts of overhead to jobs during the year: $20,000 to jobs still in process, $60,000 to jobs completed but not sold, and $120,000 to jobs finished and sold. At year-end, M.A.E. Company's Factory Overhead account has a credit balance of $5,000, which is not a material amount. What entry should M.A.E. make at year-end?

Question

Quizplus · Accepted Answer

M.A.E. has already charged overhead to jobs throughout the year, so no further allocation is necessary. The credit balance of $5,000 in the Factory Overhead account represents an underallocation of overhead (i.e., the actual overhead incurred during the year was greater than the amount charged to jobs). To close out the Factory Overhead account, it should be debited for the underallocated amount and Cost of Goods Sold should be credited for the same amount. This adjusts Cost of Goods Sold to reflect the actual overhead incurred during the year.

MA Charged