Baker Inc. has provided the following data for the month of June. There were no beginning inventories; consequently, the direct materials, direct labor, and manufacturing overhead applied listed below are all for the current month.
Work In Finished Cost of Total
Process Goods Goods Sold
Direct materials. $2,260 $7,100 $26,500 $35,860
Direct labor 4,650 15,620 58,300 78,570
Manufacturing overhead 2.640 6,600 23,760 33,000
applied
Total $9,550 $29,320 $108.560 $147430
Manufacturing overhead for the month was underapplied by $4,000. The
Corporation allocates any underapplied or overapplied manufacturing overhead
among work in process, finished goods, and cost of goods sold at the end of
the month on the basis of the manufacturing overhead applied during the month
in those accounts. The journal entry to record the allocation of any underapplied
or overapplied manufacturing overhead for March would include the following:
a. debit to Cost of Goods Sold of $3,080.
b. debit to Cost of Goods Sold of $149,410.
c. credit to Cost of Goods Sold of $3,080.
d. credit to Cost of Goods Sold of $149,410.

A debit to cost of goods sold account = $2,880

Explanation:

                                      Work In     Finished     Cost of            Total

                                      Process    Goods         Goods Sold

Direct materials.           $2,260      $7,100         $26,500         $35,860

Direct labor                     4,650      15,620           58,300            78,570

Man. overhead               2,640       6,600            23,760           33,000

applied

Total                             $9,550     $29,320       $108.560         $147430

Manufacturing overhead for the month was underapplied by $4,000.

since the underapplied overhead is allocated between WIP, COGS and finished goods:

$4,000 / $33,000 = 12.12%

the journal entry should include a debit to cost of goods sold account of $2,880. Since the COGS account has a debit balance, a debit entry should increase it. Since manufacturing overhead was underapplied, it means that the estimated costs were lower than the actual costs.

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