Prorate Over or Underapplied Overhead
Aspen Company estimates its manufacturing overhead to be $625,000 and its direct labor costs to be $500,000 for year 2. Aspen worked on three jobs for the year. Job 2 1, which was sold during year 2, had actual direct labor costs of $195,000. Job 2 2, which was completed, but not sold at the end of the year, had actual direct labor costs of $325,000. Job 2 3, which is still in work in process inventory, had actual direct labor costs of $130,000. Actual manufacturing overhead for year 2 was $825,000. Manufacturing overhead is applied on the basis of direct labor costs.
Prepare an entry to allocate over or underapplied overhead to:
a. Work in Process.
b. Finished Goods.
c. Cost of Goods Sold.