Job-order costing, Cost Accounting

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Division B uses  normal  costing in its job-order costing system, with manufacturing overhead  applied  based on direct labour hours.  You have obtained the following information about the operation of the Division.

Required:

1)  What would be the amount of the „under - or - over applied manufacturing overhead? for the year.  Indicate whether it is under or over applied.)

2)  For this requirement assume that the:

  • Division?s cost of goods sold before any prorated adjustment for the under-or over allocated manufacturing overhead to that account  is $400,000
  • Overapplied manufacturing overhead for the period is $5000
  • Predetermined overhead rate is $15 per direct labour hour.
  • During the period, the division used 8,400 direct labour hours. 
  • Inventories on December 31 included:

Part A:
Give the general journal entry required on December 31,  Year 2  to close the overhead accounts  by proration based on  the ending balances  in Work in Process, Finished Goods and Cost of Goods Sold  (to the nearest whole $).

Part B

By how much would the net income change if the Division closed the overapplied overhead to the "Cost of Goods Sold" instead of prorating it?  Would there be an increase or decrease in net income?


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