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

Question

Egerton sold 350 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 $75,000 and $65,000 of indirect costs to the Coloring Department and Mixing Department, respectively. The actual overhead cost incurred amounted to $150,000 at the end of the year. Record the necessary journal entries for the sale of goods and for adjustment of over- or underallocated manufacturing overhead at the end of the year.
What will be an ideal response

Answer 1

Accounts Receivable 38,500
Sales Revenue 38,500
Units sold

Cost of Goods Sold 24,500
Finished Goods Inventory 24,500
Units sold, costs assigned to COGS

Cost of Goods Sold 10,000
Manufacturing Overhead 10,000
MOH adjusted for underallocated overhead

Notes:
Sales Revenue = $110 x 350 gallons = $38,500

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 350 gallons = $24,500

Calculation of underallocation or overallocation of overhead costs:
Total actual overhead costs incurred $150,000
Less:
Overhead allocated to Coloring Department (75,000 )
Overhead allocated to Mixing Department (65,000 )
Overhead costs underallocated $10,000