Question:
Dillon Company applies manufacturing overhead to jobs using a predetermined overhead rate of 75% of direct labor cost. Any under or overapplied overhead cost is closed out to Cost of Goods Sold at the end of the month. During May, the following transactions were recorded by the company:
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Raw materials (all direct materials):
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Purchased during the month
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$38,000
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Used in production
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$35,000
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Labor:
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Direct labor hours worked during the month
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3,150
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Direct labor cost incurred
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$30,000
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Manufacturing overhead cost incurred (total)
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$24,500
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Inventories:
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Raw materials (all direct), May 31
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$8,000
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Work in process, May 1
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$9,000
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Work in process, May 31
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$12,000
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The entry to dispose of the under or overapplied overhead cost for the month would include:
A) a debit of $2,000 to the Manufacturing Overhead account
B) a credit of $2,500 to the Manufacturing Overhead account
C) a debit of $2,000 to Cost of Goods Sold
D) a credit of $2,500 to Cost of Goods Sold