Caldwell, Inc has two processes—Coloring Department and Mixing Department

Question

The company sold 450 gallons on account at $110 per gallon. The total cost of processing was $385,000 for 5,500 gallons of paint. Throughout the year, the company used a predetermined overhead allocation rate to allocate $80,000 and $90,000 of indirect costs to the Coloring Department and Mixing Department, respectively. The actual overhead costs incurred amounted to $150,000 at the end of the year. What are the journal entries to record the sale of goods and the adjustment for over/underallocated manufacturing overhead at the end of the year if the company follows a process costing system?
What will be an ideal response

Answer 1

Accounts Receivable 49,500
Sales Revenue 49,500
Units sold

Cost of Goods Sold 31,500
Finished Goods Inventory 31,500
Units sold, costs assigned to COGS

Manufacturing Overhead 20,000
Cost of Goods Sold 20,000
MOH adjusted for overallocated overhead

Notes:
Sales Revenue = $110 x 450 gallons = $49,500

Calculation of cost per gallon of paint processed:
Cost of processing $385,000
Number of gallons 5,500
Cost per gallon ($385,000 / 5,500 gallons) $70

Cost of Goods Sold = $70 x 450 gallons = $31,500.

Calculation of underallocation or overallocation of overhead costs:
Total actual overhead costs incurred $150,000
Less:
Overhead allocated to Coloring Department (80,000 )
Overhead allocated to Mixing Department (90,000 )
Overhead costs overallocated $(20,000 )