Hi all,
Thanks, everyone for the response.
It is true that answer D ($8,000 credit, overapplied) is the correct one.
Though I figured out that there is $8,000 overapplied overhead, my answer was
A.
Why? Because overapplied overhead does not result in a credit balance on the Manufacturing overhead control account. It results in a credit balance in overhead applied when comparing the accounts
- Manufacturing overhead control account
- Manufacturing overhead applied
Recording of the actual costs:Manufacturing overhead control account $ 132,000
Payables $ 132,000
Applying overhead to the WIP:Work-in-process $ 140,000
Manufacturing overhead applied $ 140,000
Allocation overapplied amount:
Manufacturing overhead applied $ 140,000
Work-in-process ($8,000 x 69 %) $ 5,494
Finished goods ($8,000 x 31%) $ 2,506
Manufacturing overhead control account $ 132,000
Now I figured out that my problem is in the wording of the question and answer "Company's net charge to overhead control is $8,000 credit overapplied."
I misinterpreted the wording "…overhead control…" i.e. I do not master the terminology appropriately. In my wrong perception, the question is referring solely to the 'Manufacturing overhead control account' which is always debited when charged. But to make sense it should be referring to the combination of both accounts, 'Manufacturing overhead control account' and 'Manufacturing overhead applied', together. Looking at both, then there is that credit balance.
Thanks a lot. Your input helped me process my thoughts.
Bye,
Leandra
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Leandra Tel
[open to work]
Arnhem
Netherlands
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Original Message:
Sent: 01-29-2021 10:49 AM
From: Leandra Tel
Subject: Help request: MCQ Over- and Underapplied Overhead
Hi all,
I am curious. Though I know the right answer, meaning I can calculate and explain the journal entries, in an exam situation I would choose the wrong answer. Probably due to a language barrier. What answer would you choose? And can you explain why?
Fact Pattern:
The production data for one month of Company X follows:
Direct labor $200,000
Actual manufacturing overhead $132,000
Direct materials purchased $163,000
Transportation in $ 4,000
Purchase returns and allowances $ 2,000
Company X uses one overhead control account and charges overhead to production at 70% of direct labor cost.
The company does not formally recognize over- or underapplied overhead until year-end.
Question: Company X's net charge to overhead control for the month is
- $8,000 debit, overapplied
- $8,000 debit, underapplied
- $8,000 credit, underapplied
- $8,000 credit, overapplied
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Leandra Tel
[open to work]
Arnhem
Netherlands
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