Problem:
Jacobs Company manufactures refrigerators. The company uses a budgeted indirect-cost rate for its manufacturing operations and during 2005 allocated $1,000,000 to work-in-process inventory. Actual overhead incurred was $1,100,000.
Ending balances in the following accounts are:
Work in Process $100,000
Finished Goods $750,000
Cost of Goods Sold $4,150,000
Q1. Prepare a journal entry to write off the difference between allocated and actual overhead directly to Cost of Goods Sold. Be sure your journal entry closes the related overhead accounts.
Q2. Prepare a journal entry that prorates the write-off of the difference between allocated and actual overhead using ending account balances. Be sure your journal entry closes the related overhead accounts.