Question 11

The following information applies to the overhead account of Churchill Pty Ltd at the end of the financial year:

Debits for actual manufacturing overhead = $520,000

Credits for applied manufacturing overhead = $450,000

Required:

1. Is the manufacturing overhead underapplied or overapplied?

2. Describe the two possible methods of disposing of the difference between actual and applied overhead.

3. Prepare journal entries to dispose of the overhead. Assume 20% of the production is still work-in-process and 15% is finished but unsold. Show journal entries for both possible methods as you have discussed in item 2 above.

4. How would the above entries be different if the accounts were as follows:

Actual manufacturing overhead = $450,000

Applied manufacturing overhead = $520,000