Analysis Component 5. The over- or underapplied overhead is closed to Cost of Go

Question

Analysis Component 5. The over- or underapplied overhead is closed to Cost of Goods Sold. Discuss how mpacts business decision making regarding individual jobs or batches of jobs. Bergamo Bay's computer system generated the following trial balance on December 31, 2015 Problem 19-2A Source documents, journal entries, overhead, and financial reports P1 P2 P3 P4 pany's manager knows something is wrong with the trial balance because it does not show for Work in Process Inventory but does show a balance for the Factory Overhead the accrued factory payroll (Factory Payroll Payable) has not been recorded account. In Debit Credit 1 $170,000 75.000 80,000 Cash.. Accounts receivable Raw materials inventory work in process inventory Finished goods inventory Prepaid rent Accounts payable Notes payable. … Common stock Retained earnings Sales 15,000 ..3,000 17000 25,000 50,000 271,000 373,000 Cot of goods sold 218000 Factory overhead... Operating expenses Totals.. 60000 $736000 $73600 After examining various files, the manager identifies the following six source documents that ncod processed to bring the accounting records up to date. Materials requisition 21-30IO $10.200 direct materials to Job 402 Materials requisition 21-3011: $18.600 direct materials to job 404 Materials requisition 21-3012: $5,600 indirect materials Labor time ticket 6052: Labor time ticket 6053: Labor time ticket 60S4 $36.000 direct labor to job 402 $23,800 direct labor to job 404 $8,200 indirect labor

Explanation / Answer

1. In the books of Bergamo Bay:

2. Revised balance of Factory Overhead:

Underapplied Factory Overhead : $ 9,200.

Adjusting entry to close underapplied factory overhead :

3. Bergamo Bay

Revised Trial Balance

December 31, 2015

4. Bergamo Bay

Income Statement

For the Year Ended December 31, 2015

Bergamo Bay

Balance Sheet

December 31, 2015

5. Work in Process Inventory would have been higher by $ 5,600, and cost of goods sold lesser by $ 5,600. As a result, income for the period would have been greater by $ 5,600. This is because the cost of $ 5,600 is deferred to the next accounting period in the form of ending Work in Process Inventory.

Transaction / Event Account Titles Debit Credit $ $ a. Work in Process Inventory 28,800 Raw Materials Inventory 28,800 b. Work in Process Inventory 59,800 Factory Payroll Payable 59,800 c. Work in Process Inventory ( $ 59,800 x 2) 119,600 Factory Overhead 119,600 d. Factory Overhead 5,600 Raw Materials Inventory 5,600 e. Factory Overhead 8,200 Factory Payroll Payable 8,200

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