
Concept explainers
Over-applied
Under-applied overheads means when applied overheads are less than the actual overheads incurred then it is known under-applied overheads
Requirement-1
To determine:
We have to prepare journal entries for the various costs assigned in the given question from (a) to (e)

Answer to Problem 2BPSB
Solution:
JOURNAL ENTRIES
.
Date | Journal titles | Debit($) | Credit($) |
a.Dec. 31 | work in Process Inventory | 12,200 | |
Raw Materials Inventory(4600 +7600) | 12,200 | ||
(being direct material recorded) | |||
b. Dec. 31 | work in Process Inventory | 13,000 | |
Factory Payroll(5000 +8000) | 13,000 | ||
(being direct labor recorded) | |||
c. Dec. 31 | Goods in Process Inventory | 26,000 | |
Factory Overhead(200% of direct labor) | 26,000 | ||
(being overhead recorded) | |||
d. Dec. 31 | Factory Overhead | 2,100 | |
Raw Materials Inventory | 2,100 | ||
(being indirect material allocated) | |||
e. Dec. 31 | Factory Overhead | 3,000 | |
Factory Payroll | 3,000 | ||
(being indirect labor recorded) |
Explanation of Solution
Explanation:
a. When goods are used in the production then work in progress account will be debited and raw material account will be credited as material were put to use.
b. When direct labor were employed in the process then work in progress account will be debited as its amount will get increased with the amount of direct labor and factory payroll account will be credited.
c. When overhead is applied in the process which is 200%of direct labor then work in progress account will be debited and overhead account will be credited.
d. When indirect material were recorded then it will be added to the overhead account and thus debited and raw material account will be credited.
e. When indirect labor were employed in the production then factory overhead account will be debited and factory payroll account will be credited.
Requirement-2
To determine:
We have to determine revised value of fixed overhead and also to determine whether it is under applied or over applies and prepare a

Answer to Problem 2BPSB
Solution:
Factory overhead under applied is $6100.
Cost of Goods Sold Factory overhead |
6,100 | 6100 | |
( being under-applied overhead recorded.) |
Explanation of Solution
Explanation:
2. calculation of under-applied overhead
Balance from |
$27,000 | Debit |
Applied to Jobs 603 and 604 | (26,000) | Credit |
Additional indirect materials | 2,100 | Debit |
Additional indirect labor | 3,000 | Debit |
Under applied overhead | $ 6,100 | Debit |
Requirement -3
To determine:
We have to prepare a revised trial balance after all above adjustments.

Answer to Problem 2BPSB
Solution:
CAVALLO MFG. COMPANY
Trial Balance for the year ended December 31, 2017
Particulars | Debit($) | Credit($) |
Cash | $ 64,000 | |
42,000 | ||
Raw materials inventory(a) | 11,700 | |
Goods in process inventory(b) | 51,200 | |
Finished goods inventory | 9,000 | |
Prepaid rent | 3,000 | |
Accounts payable | $ 10,500 | |
Notes payable | 13,500 | |
Common stock | 30,000 | |
87,000 | ||
Sales | 180,000 | |
Cost of goods sold(c) | 111,100 | |
Factory payroll | 16,000 | |
Factory overhead | 0 | |
Operating expenses | 45,000 | _______ |
Totals | $337,000 | $337,000 |
Explanation of Solution
Explanation:
a) Raw materials inventory
Balance per trial balance | $26,000 |
Less: Amounts recorded for Jobs 603 and 604 | (12,200) |
Less: Indirect materials | (2,100) |
Ending balance | $11,700 |
b) Goods in process inventory
Job 603 | Job 604 | Total | |
Direct materials | $ 4,600 | $ 7,600 | $12,200 |
Direct labor | 5,000 | 8,000 | 13,000 |
Overhead | 10,000 | 16,000 | 26,000 |
Total cost | $19,600 | $31,600 | $51,200 |
c) cost of goods sold:
Balance per trial balance | $105,000 |
Add: under-applied overhead | 6,100 |
Ending balance | $111,100 |
Requirement-4:
We have to prepare income statement and

Answer to Problem 2BPSB
Solution:
CAVALLO MFG. COMPANY
Income Statement
For Year Ended December 31, 2017
Sales | $ 180,000 | |
Less: Cost of goods sold | (111,100) | |
Gross profit | 68,900 | |
Less: Operating expenses | (45,000) | |
Net income | $ 23,900 |
CAVALLO MFG.COMPANY
Balance Sheet as on December 31, 2017
Cash | $ 48,000 | |
Accounts receivable | 42,000 | |
Inventories | ||
Raw materials inventory | $11,700 | |
Goods in process inventory | 51,200 | |
Finished goods inventory | 9,000 | 71,900 |
Prepaid rent | 3,000 | |
Total assets | $164,900 | |
Liabilities and equity | ||
Accounts payable | $ 10,500 | |
Notes payable | 13,500 | |
Total liabilities | 24,000 | |
Common stock | 30,000 | |
Retained earnings ($87,000 + $23,900) | 110,900 | |
Total |
140,900 | |
Total liabilities and equity | $164,900 |
Explanation of Solution
Explanation:
Calculation of Raw materials inventory
Balance as per trial balance | $26,000 |
Less: Amounts recorded for Jobs 603 and 604 | (12,200) |
Less: Indirect materials | (2,100) |
Value of raw material inventory | $11,700 |
Calculation of Goods in process inventory
Job 603 | Job 604 | Total | |
Direct materials | $ 4,600 | $ 7,600 | $12,200 |
Direct labor | 5,000 | 8,000 | 13,000 |
Overhead | 10,000 | 16,000 | 26,000 |
Total goods in process inventory | $19,600 | $31,600 | $51,200 |
Requirement-5
To determine:
We have to determine impact of error of charging direct material $2,100 on Job 604 on income statement and balance sheet.

Answer to Problem 2BPSB
Solution:
The $2,100 error would cause the costs for Job 604 to be understated. Since Job 604 is in process at the end of the reporting period, work in process inventory and total assets would both be understated on the balance sheet.
Explanation of Solution
Explanation:
The $2,100 error would lead the costs for Job 604 to be understated. Since Job 604 is in process at the end of the reporting period, work in process inventory and total assets would both be understated on the balance sheet
Also, the over- or under-applied overhead would be changed by $2,100 means if overhead is under-applied by $6,100, then the amount would decrease by $2,100, resulting in $4,000 under-applied overhead.
So to correct the error cost of goods sold will decrease and net income increase by $2,100 resulting in $2,100 increase in retained earnings.
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Chapter 19 Solutions
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