Mulligan Imports has a small golf shaft production line, which manufactures a titanium shaft and an aluminum shaft. Considerable machining is required for both shafts, so Mulligan concludes that it should allocate overhead to these products based on the total hours of machine time used. In May, production of the titanium shaft requires 5,400 hours of machine time, while the aluminum shaft needs 2,600 hours. Thus, 67.5% of the overhead cost pool is allocated to the titanium shafts and 32.5% to the aluminum shafts.
In May, Mulligan accumulates $100,000 of costs in its overhead cost pool, and allocates it between the two product lines with the following journal entry:
|
Debit |
Credit |
|
|
Finished goods – Titanium shafts |
67,500 |
|
|
Finished goods – Aluminum shafts |
32,500 |
|
|
Overhead cost pool |
100,000 |
This entry clears out the balance in the overhead cost pool, readying it to accumulate overhead costs in the next reporting period.