Reference no: EM132521452

Proration of underapplied overhead: manufacturer Buzzsaw Manufacturing incurred $267 200 of manufacturing overhead costs during the past
year. However, only $232 000 of overhead was applied to production.

At the conclusion of the year, the following amounts of the applied overhead remained in the various manufacturing accounts:

Work in process inventory $ 46 400

Finished goods inventory 81 200

Cost of goods sold 104 400

Required:

Question 1. Explain whether the company has overapplied or underapplied its overhead to production.

Question 2. Prepare a journal entry to close off the balance in the manufacturing overhead account and prorate the balance to the three manufacturing accounts.

Question 3. What would be the effect on profit if the alternative method of closing off overhead were used?