Figure 4-7
The Cherokee Company uses a predetermined overhead rate. The following accounts have these unadjusted balances:
Raw Materials $20,000 Work in Process $40,000 Finished Goods $10,000 Cost of Goods Sold $50,000
-Refer to Figure 4-7. If Manufacturing overhead was $12,000 overapplied and considered immaterial, 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

Quizplus · Accepted Answer

Since the overapplication of manufacturing overhead is considered immaterial, it can be closed directly to Cost of Goods Sold. Therefore, the journal entry would be to debit Manufacturing Overhead and credit Cost of Goods Sold for the amount of overapplication, which is $12,000. Option B is the correct choice. Option A is incorrect because it has the debits and credits reversed. Option C and D are incorrect because they allocate the overapplication among multiple accounts, which is not necessary when the amount is deemed immaterial. Option E is incorrect because the amounts allocated to Work in Process, Finished Goods and Cost of Goods Sold are not in proportion to their respective unadjusted balances.

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