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Applied factory overhead was $2,100 and actual factory overhead turns out to be $2,150. Which entry reconciles the two?
ADebit Factory Overhead $50, credit Cost of Goods Sold
BDebit Work in Process $50, credit Factory Overhead
CDebit Cost of Goods Sold $50, credit Factory Overhead
DDebit Factory Overhead $50, credit Work in Process
Answer & Solution
Correct answer: C. Debit Cost of Goods Sold $50, credit Factory Overhead
1. Overhead was applied at an estimated $2,100 when jobs were in production.
2. Once all bills arrive, actual factory overhead is known to be $2,150.
3. Actual exceeds applied by $2,150 minus $2,100, which is $50, so overhead was under applied by $50.
4. Not enough overhead was moved out of the Factory Overhead account, so a further credit of $50 is needed there.
5. The matching debit goes to Cost of Goods Sold, which rises by $50.
6. The first credit of $2,100 plus this credit of $50 equals the actual $2,150.
7. Debiting Factory Overhead would be the over applied case, where too much had been moved out.
8. Work in Process is never used in this reconciliation, so both entries naming it are wrong.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 2.2 Comprehensive Example of Job Order Costing Transactions for a Manufacturing Company_
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