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7 September, 19:58

Moira Company has just finished its first year of operations and must decide which method to use for adjusting inventory accounts. Because the company used a budgeted indirect-cost rate for its manufacturing operations, the amount that was allocated ($435,000) to cost of goods sold was different from the actual amount incurred ($425,000). Ending balances in the affected accounts were:

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  1. 7 September, 21:59
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    The Cost of good sold will decrease by 10,000

    The other accounts balance will be the same.

    Missing Information:

    Ending balances in the relevant accounts were:

    Work-in-Process 40,000

    Finished Goods 80,000

    Cost of Goods Sold 680,000

    Explanation:

    The company applied overhead for the amount of 435,000

    This was charged into finished good which latter become cost of goods sold.

    Then, as the actual overhead was 425,000 we have to adjust for the over-applied overehad. We applied more than it cost so we have to reduce it.

    435,000 - 425,000 = 10,000

    We will decrease our COGS against the factory overhead account.

    COGS 10,000 debit

    factory overhead 10,000 credit
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