Roofe Inc. has provided the following data for the month of October. There were no beginning inventories; consequently, the direct materials, direct labor, and manufacturing overhead applied listed below are all for the current month. Manufacturing overhead for the month was underapplied by $2,000.
The company allocates any underapplied or overapplied overhead among work in process, finished goods, and cost of goods sold at the end of the month on the basis of the overhead applied during the month in those accounts.
-The journal entry to record the allocation of any underapplied or overapplied overhead for October would include the following:
A) credit to Finished Goods of $260
B) credit to Finished Goods of $35,950
C) debit to Finished Goods of $260
D) debit to Finished Goods of $35,950

Question

Roofe Inc. has provided the following data for the month of October. There were no beginning inventories; consequently, the direct materials, direct labor, and manufacturing overhead applied listed below are all for the current month.  Manufacturing overhead for the month was underapplied by $2,000.
The company allocates any underapplied or overapplied overhead among work in process, finished goods, and cost of goods sold at the end of the month on the basis of the overhead applied during the month in those accounts.
-The journal entry to record the allocation of any underapplied or overapplied overhead for October would include the following:
A) credit to Finished Goods of $260 
B) credit to Finished Goods of $35,950 
C) debit to Finished Goods of $260 
D) debit to Finished Goods of $35,950

Quizplus · Accepted Answer

The underapplied overhead of $2,000 is a debit balance in the manufacturing overhead account. To allocate this underapplied overhead, we need to decrease the balance in the manufacturing overhead account by $2,000 by debiting the account. This should then be credited against the Finished Goods account, since this is the account that was affected by the underapplied overhead. Therefore, the journal entry to record the allocation of underapplied overhead will include a debit to Manufacturing Overhead for $2,000 and a credit to Finished Goods for $2,000 (which is the amount of overhead applied during the month). Since the question does not provide the amount of overhead applied during the month, we cannot compute the exact amount of credit to Finished Goods. However, we do know that it is one of the options provided, and the correct choice is C, which reflects a smaller credit amount to Finished Goods.

Roofe Inc Has Provided the Following Data for the Month of of October