{"id":164,"date":"2021-01-26T22:17:49","date_gmt":"2021-01-26T22:17:49","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/?post_type=chapter&#038;p=164"},"modified":"2021-08-03T02:12:48","modified_gmt":"2021-08-03T02:12:48","slug":"over-and-under-allocated-overhead","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/chapter\/over-and-under-allocated-overhead\/","title":{"raw":"Over and Under-allocated Overhead","rendered":"Over and Under-allocated Overhead"},"content":{"raw":"<div class=\"textbox learning-objectives\">\r\n<h3>Learning Outcomes<\/h3>\r\n<ul>\r\n \t<li>Adjust for over and under-allocated overhead<\/li>\r\n<\/ul>\r\n<\/div>\r\nAt the end of the month, Jackie notices that her Factory Overhead account looks like this:\r\n<table class=\"fin-table tchart\"><caption>Factory Overhead<\/caption>\r\n<thead>\r\n<tr>\r\n<th class=\"u-sr-only\" scope=\"col\">Debit<\/th>\r\n<th class=\"u-sr-only\" scope=\"col\">Credit<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td class=\"r\">2,500<\/td>\r\n<td class=\"r\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">3,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td class=\"r\">300<\/td>\r\n<td class=\"r\"><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<tfoot>\r\n<tr class=\"total\">\r\n<td class=\"r\"><span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r\"><span class=\"u-sr-only\">Double line<\/span>200<\/td>\r\n<\/tr>\r\n<\/tfoot>\r\n<\/table>\r\n&nbsp;\r\n\r\nShe used a standard rate to allocate Factory Overhead to jobs during the month that assigned $3,000 of overhead based on $3 per direct labor dollars:\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\">\r\n<tbody>\r\n<tr>\r\n<th scope=\"col\">Job Sheet<\/th>\r\n<th class=\"r\" scope=\"col\">Job 1<\/th>\r\n<th class=\"r\" scope=\"col\">Job 2<\/th>\r\n<th class=\"r\" scope=\"col\">Job 3<\/th>\r\n<th class=\"r\" scope=\"col\">Total WIP<\/th>\r\n<\/tr>\r\n<\/tbody>\r\n<tbody>\r\n<tr>\r\n<td colspan=\"5\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>Direct Materials<\/strong><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Wood<\/td>\r\n<td class=\"r\">100<\/td>\r\n<td class=\"r\">100<\/td>\r\n<td class=\"r\">100<\/td>\r\n<td class=\"r\">300<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Wheels\/trucks<\/td>\r\n<td class=\"r\">50<\/td>\r\n<td class=\"r\">100<\/td>\r\n<td><\/td>\r\n<td class=\"r\">150<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Direct Labor<\/td>\r\n<td class=\"r\">400<\/td>\r\n<td class=\"r\">600<\/td>\r\n<td><\/td>\r\n<td class=\"r\">1000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Overhead allocation ($3\/DL$)<\/td>\r\n<td class=\"r\">1200<\/td>\r\n<td class=\"r\">1800<\/td>\r\n<td class=\"r\">0<\/td>\r\n<td class=\"r\">3000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Total Job Cost<\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>1750<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>2600<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>100<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>4450<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n&nbsp;\r\n\r\n<\/div>\r\nActual overhead was $2,800 ($2,500 rent and $300 materials).\r\n\r\nTherefore, the Factory Overhead account shows a credit balance of $200, which means it was over-allocated. In order to reconcile that account, the financial accountants would make the following journal entry:\r\n<div align=\"left\">\r\n<table class=\"fin-table gridded\">\r\n<thead>\r\n<tr>\r\n<th scope=\"col\">Date<\/th>\r\n<th scope=\"col\">Account\/Explanation<\/th>\r\n<th scope=\"col\">Debit<\/th>\r\n<th scope=\"col\">Credit<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<th scope=\"row\">Jul 31<\/th>\r\n<td class=\"highlight\">Factory Overhead<\/td>\r\n<td class=\"r highlight\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 200<\/td>\r\n<td class=\"highlight\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td class=\"highlight\">\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Cost of Goods Sold<\/td>\r\n<td class=\"highlight\"><\/td>\r\n<td class=\"r highlight\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 200<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td><em>To adjust over-allocated factory overhead<\/em><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n&nbsp;\r\n\r\n<\/div>\r\n<img class=\"aligncenter\" src=\"https:\/\/lh4.googleusercontent.com\/_lu0eHf-ujXbo8t9ESZO826M03gZPI3Xrqy65pidQmarJ-xtyezAPYqRByPW8C1BiFBIZPC-qUD9aM5ap_JxZd_YbnbOTxBCz2Em0weMJ77WUBGzLSn8RUU3lnr-epw4GCwM0RP1\" alt=\"A journal entry dated July 31 shows a debit of $200 to Factory Overhead and a credit of $200 to Cost of Goods Sold with the note \u201cTo adjust under-allocated factory overhead\u201d. Each line item in the journal entry points to the corresponding debit or credit on its respective t-account.\" width=\"1095\" height=\"813\" \/>\r\n\r\nFinally, Jackie will run a trial balance to make sure all debits equal credits and to summarize the accounts as follows:\r\n\r\n<img class=\"aligncenter wp-image-1166 size-full\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5469\/2021\/01\/29202930\/5.3.2a.png\" alt=\"A t-account for Checking Account shows a debit of $150,000 beginning balance, credits of $2,500, $400, $50, $600, and $100, a debit of $2,000, and a debit of $148,350 ending balance. A t-account of Raw Materials - Direct shows a debit of $3,000 beginning balance, credits of $100, $100, and $100, and a debit of $2,700 ending balance. A t-account for Work in Process shows a debit of $100 beginning balance, debits of $450, $100, $700, $100, and $3,000, a debit of $4,350, and a debit of $100 ending balance. A t-account for Raw Materials - indirect shows a debit of $1,000 beginning balance, a credit of $300, and a debit of $700 ending balance. A t-account for finished goods shows a debit of $4,350 beginning balance, a credit of $1,750, and a debit of $2,600 ending balance. A t-account for Owner\u2019s Capital shows a credit of $150,000 beginning and ending balance.\" width=\"686\" height=\"811\" \/>\r\n<img class=\"aligncenter wp-image-1167 size-full\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5469\/2021\/01\/29202938\/5.3.2b.png\" alt=\"A t-account for Accounts Payable shows a credit of $3,000 beginning balance, a credit of $1,000, and a credit of $4,000 ending balance. A t-account for Sales Revenue shows a credit of $2,000 beginning and ending balance. A t-account for Factory Overhead shows a debit of $2,500 beginning balance, a $3,000 credit, debits of $300 and $200, and a debit of $0 ending balance. A t-account for Cost of Goods Sold shows a debit of $1,750 beginning balance, a $200 credit, and a debit of $1,550 ending balance.\" width=\"653\" height=\"466\" \/>\r\n\r\n&nbsp;\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\">\r\n<tbody>\r\n<tr>\r\n<th class=\"r\" scope=\"col\"><\/th>\r\n<th class=\"r\" scope=\"col\">DR<\/th>\r\n<th class=\"r\" scope=\"col\">CR<\/th>\r\n<th scope=\"col\">\u00a0\u00a0\u00a0Notes<\/th>\r\n<\/tr>\r\n<\/tbody>\r\n<tbody>\r\n<tr>\r\n<td>Checking Account<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 148,350<\/td>\r\n<td><\/td>\r\n<td>\r\n<ul>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">Should agree with bank reconciliation<\/li>\r\n<\/ul>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Raw Materials - direct<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 2,700<\/td>\r\n<td><\/td>\r\n<td>\r\n<ul>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">54 units at $50 each<\/li>\r\n<\/ul>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Raw Materials - indirect<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 700<\/td>\r\n<td><\/td>\r\n<td>\r\n<ul>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">Per physical count<\/li>\r\n<\/ul>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Work in Process<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 100<\/td>\r\n<td><\/td>\r\n<td>\r\n<ul>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">Job 3 just started<\/li>\r\n<\/ul>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Finished Goods<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 2,600<\/td>\r\n<td><\/td>\r\n<td>\r\n<ul>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">Job 2 completed but not yet sold<\/li>\r\n<\/ul>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Accounts Payable<\/td>\r\n<td><\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 4,000<\/td>\r\n<td>\r\n<ul>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">Due to suppliers for raw materials bought on credit<\/li>\r\n<\/ul>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Owner's Capital<\/td>\r\n<td><\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 150,000<\/td>\r\n<td>\r\n<ul>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">Initial investment by Jackie Ma<\/li>\r\n<\/ul>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Sales Revenue<\/td>\r\n<td><\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 2,000<\/td>\r\n<td>\r\n<ul>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">Job 1 sold to<\/li>\r\n<\/ul>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Cost of Goods Sold<\/td>\r\n<td class=\"r\">1,550<\/td>\r\n<td><\/td>\r\n<td>\r\n<ul>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">Job 1 sold to<\/li>\r\n<\/ul>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Factory Overhead<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 -<\/td>\r\n<td><\/td>\r\n<td>\r\n<ul>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">Allocated to Jobs<\/li>\r\n<\/ul>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>\u00a0 \u00a0 156,000<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>\u00a0 \u00a0 \u00a0 156,000<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n\r\nWe can see that after accounting for the overhead, which was over-allocated to Jobs 1 and 2, by recording it as an adjustment to Cost of Goods Sold, it improves MaBoards' financial gross profit by $200. As long as those final adjustments are not material to the financial statements taken as a whole, managerial accountants feel that the additional benefit of having real-time information makes up for the lack of precision that comes with estimating Factory Overhead by using a standard rate during the month.\r\n\r\nInstead of plugging under- or over-allocated overhead into cost of goods sold as an unassigned (to any job) amount, we could re-allocate factory overhead to jobs based on the actual amount of overhead incurred, but that would be of more interest to financial accountants, who are focused on historical data.\r\n\r\nObviously, the managerial accountants will adjust the rate based on historical and projected information.\r\n\r\nWatch this video to see how to dispose of overallocated or under-allocated overhead.\r\n\r\n<iframe src=\"\/\/plugin.3playmedia.com\/show?mf=6352558&amp;p3sdk_version=1.10.1&amp;p=20361&amp;pt=375&amp;video_id=FkS_mbt7f6k&amp;video_target=tpm-plugin-67dk2mez-FkS_mbt7f6k\" width=\"800px\" height=\"450px\" frameborder=\"0\" marginwidth=\"0px\" marginheight=\"0px\"><\/iframe>\r\n\r\nYou can view the <a href=\"https:\/\/oerfiles.s3.us-west-2.amazonaws.com\/Managerial+Accounting\/Transcripts\/UnderappliedorOverappliedManufacturingOverhead_transcript.txt\" target=\"_blank\" rel=\"noopener\">transcript for \"Underapplied or Overapplied Manufacturing Overhead (how to dispose of it)\" here (opens in new window)<\/a>.\r\n\r\nNow, let\u2019s check your understanding of adjusting Factory Overhead at the end of the month.\r\n<div class=\"textbox tryit\">\r\n<h3>Practice Question<\/h3>\r\n[ohm_question hide_question_numbers=1]219042[\/ohm_question]\r\n\r\n<\/div>","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Outcomes<\/h3>\n<ul>\n<li>Adjust for over and under-allocated overhead<\/li>\n<\/ul>\n<\/div>\n<p>At the end of the month, Jackie notices that her Factory Overhead account looks like this:<\/p>\n<table class=\"fin-table tchart\">\n<caption>Factory Overhead<\/caption>\n<thead>\n<tr>\n<th class=\"u-sr-only\" scope=\"col\">Debit<\/th>\n<th class=\"u-sr-only\" scope=\"col\">Credit<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td class=\"r\">2,500<\/td>\n<td class=\"r\"><\/td>\n<\/tr>\n<tr>\n<td class=\"r\"><\/td>\n<td class=\"r\">3,000<\/td>\n<\/tr>\n<tr>\n<td class=\"r\">300<\/td>\n<td class=\"r\"><\/td>\n<\/tr>\n<\/tbody>\n<tfoot>\n<tr class=\"total\">\n<td class=\"r\"><span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r\"><span class=\"u-sr-only\">Double line<\/span>200<\/td>\n<\/tr>\n<\/tfoot>\n<\/table>\n<p>&nbsp;<\/p>\n<p>She used a standard rate to allocate Factory Overhead to jobs during the month that assigned $3,000 of overhead based on $3 per direct labor dollars:<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<tbody>\n<tr>\n<th scope=\"col\">Job Sheet<\/th>\n<th class=\"r\" scope=\"col\">Job 1<\/th>\n<th class=\"r\" scope=\"col\">Job 2<\/th>\n<th class=\"r\" scope=\"col\">Job 3<\/th>\n<th class=\"r\" scope=\"col\">Total WIP<\/th>\n<\/tr>\n<\/tbody>\n<tbody>\n<tr>\n<td colspan=\"5\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>Direct Materials<\/strong><\/td>\n<\/tr>\n<tr>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Wood<\/td>\n<td class=\"r\">100<\/td>\n<td class=\"r\">100<\/td>\n<td class=\"r\">100<\/td>\n<td class=\"r\">300<\/td>\n<\/tr>\n<tr>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Wheels\/trucks<\/td>\n<td class=\"r\">50<\/td>\n<td class=\"r\">100<\/td>\n<td><\/td>\n<td class=\"r\">150<\/td>\n<\/tr>\n<tr>\n<td>Direct Labor<\/td>\n<td class=\"r\">400<\/td>\n<td class=\"r\">600<\/td>\n<td><\/td>\n<td class=\"r\">1000<\/td>\n<\/tr>\n<tr>\n<td>Overhead allocation ($3\/DL$)<\/td>\n<td class=\"r\">1200<\/td>\n<td class=\"r\">1800<\/td>\n<td class=\"r\">0<\/td>\n<td class=\"r\">3000<\/td>\n<\/tr>\n<tr>\n<td>Total Job Cost<\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>1750<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>2600<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>100<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>4450<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>&nbsp;<\/p>\n<\/div>\n<p>Actual overhead was $2,800 ($2,500 rent and $300 materials).<\/p>\n<p>Therefore, the Factory Overhead account shows a credit balance of $200, which means it was over-allocated. In order to reconcile that account, the financial accountants would make the following journal entry:<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table gridded\">\n<thead>\n<tr>\n<th scope=\"col\">Date<\/th>\n<th scope=\"col\">Account\/Explanation<\/th>\n<th scope=\"col\">Debit<\/th>\n<th scope=\"col\">Credit<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<th scope=\"row\">Jul 31<\/th>\n<td class=\"highlight\">Factory Overhead<\/td>\n<td class=\"r highlight\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 200<\/td>\n<td class=\"highlight\"><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td class=\"highlight\">\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Cost of Goods Sold<\/td>\n<td class=\"highlight\"><\/td>\n<td class=\"r highlight\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 200<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><em>To adjust over-allocated factory overhead<\/em><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>&nbsp;<\/p>\n<\/div>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" src=\"https:\/\/lh4.googleusercontent.com\/_lu0eHf-ujXbo8t9ESZO826M03gZPI3Xrqy65pidQmarJ-xtyezAPYqRByPW8C1BiFBIZPC-qUD9aM5ap_JxZd_YbnbOTxBCz2Em0weMJ77WUBGzLSn8RUU3lnr-epw4GCwM0RP1\" alt=\"A journal entry dated July 31 shows a debit of $200 to Factory Overhead and a credit of $200 to Cost of Goods Sold with the note \u201cTo adjust under-allocated factory overhead\u201d. Each line item in the journal entry points to the corresponding debit or credit on its respective t-account.\" width=\"1095\" height=\"813\" \/><\/p>\n<p>Finally, Jackie will run a trial balance to make sure all debits equal credits and to summarize the accounts as follows:<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-1166 size-full\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5469\/2021\/01\/29202930\/5.3.2a.png\" alt=\"A t-account for Checking Account shows a debit of $150,000 beginning balance, credits of $2,500, $400, $50, $600, and $100, a debit of $2,000, and a debit of $148,350 ending balance. A t-account of Raw Materials - Direct shows a debit of $3,000 beginning balance, credits of $100, $100, and $100, and a debit of $2,700 ending balance. A t-account for Work in Process shows a debit of $100 beginning balance, debits of $450, $100, $700, $100, and $3,000, a debit of $4,350, and a debit of $100 ending balance. A t-account for Raw Materials - indirect shows a debit of $1,000 beginning balance, a credit of $300, and a debit of $700 ending balance. A t-account for finished goods shows a debit of $4,350 beginning balance, a credit of $1,750, and a debit of $2,600 ending balance. A t-account for Owner\u2019s Capital shows a credit of $150,000 beginning and ending balance.\" width=\"686\" height=\"811\" \/><br \/>\n<img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-1167 size-full\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5469\/2021\/01\/29202938\/5.3.2b.png\" alt=\"A t-account for Accounts Payable shows a credit of $3,000 beginning balance, a credit of $1,000, and a credit of $4,000 ending balance. A t-account for Sales Revenue shows a credit of $2,000 beginning and ending balance. A t-account for Factory Overhead shows a debit of $2,500 beginning balance, a $3,000 credit, debits of $300 and $200, and a debit of $0 ending balance. A t-account for Cost of Goods Sold shows a debit of $1,750 beginning balance, a $200 credit, and a debit of $1,550 ending balance.\" width=\"653\" height=\"466\" \/><\/p>\n<p>&nbsp;<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<tbody>\n<tr>\n<th class=\"r\" scope=\"col\"><\/th>\n<th class=\"r\" scope=\"col\">DR<\/th>\n<th class=\"r\" scope=\"col\">CR<\/th>\n<th scope=\"col\">\u00a0\u00a0\u00a0Notes<\/th>\n<\/tr>\n<\/tbody>\n<tbody>\n<tr>\n<td>Checking Account<\/td>\n<td class=\"r\">\u00a0 \u00a0 148,350<\/td>\n<td><\/td>\n<td>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">Should agree with bank reconciliation<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<tr>\n<td>Raw Materials &#8211; direct<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 2,700<\/td>\n<td><\/td>\n<td>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">54 units at $50 each<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<tr>\n<td>Raw Materials &#8211; indirect<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 700<\/td>\n<td><\/td>\n<td>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">Per physical count<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<tr>\n<td>Work in Process<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 100<\/td>\n<td><\/td>\n<td>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">Job 3 just started<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<tr>\n<td>Finished Goods<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 2,600<\/td>\n<td><\/td>\n<td>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">Job 2 completed but not yet sold<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<tr>\n<td>Accounts Payable<\/td>\n<td><\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 4,000<\/td>\n<td>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">Due to suppliers for raw materials bought on credit<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<tr>\n<td>Owner&#8217;s Capital<\/td>\n<td><\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 150,000<\/td>\n<td>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">Initial investment by Jackie Ma<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<tr>\n<td>Sales Revenue<\/td>\n<td><\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 2,000<\/td>\n<td>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">Job 1 sold to<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<tr>\n<td>Cost of Goods Sold<\/td>\n<td class=\"r\">1,550<\/td>\n<td><\/td>\n<td>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">Job 1 sold to<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<tr>\n<td>Factory Overhead<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 &#8211;<\/td>\n<td><\/td>\n<td>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">Allocated to Jobs<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>\u00a0 \u00a0 156,000<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>\u00a0 \u00a0 \u00a0 156,000<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<p>We can see that after accounting for the overhead, which was over-allocated to Jobs 1 and 2, by recording it as an adjustment to Cost of Goods Sold, it improves MaBoards&#8217; financial gross profit by $200. As long as those final adjustments are not material to the financial statements taken as a whole, managerial accountants feel that the additional benefit of having real-time information makes up for the lack of precision that comes with estimating Factory Overhead by using a standard rate during the month.<\/p>\n<p>Instead of plugging under- or over-allocated overhead into cost of goods sold as an unassigned (to any job) amount, we could re-allocate factory overhead to jobs based on the actual amount of overhead incurred, but that would be of more interest to financial accountants, who are focused on historical data.<\/p>\n<p>Obviously, the managerial accountants will adjust the rate based on historical and projected information.<\/p>\n<p>Watch this video to see how to dispose of overallocated or under-allocated overhead.<\/p>\n<p><iframe loading=\"lazy\" src=\"\/\/plugin.3playmedia.com\/show?mf=6352558&amp;p3sdk_version=1.10.1&amp;p=20361&amp;pt=375&amp;video_id=FkS_mbt7f6k&amp;video_target=tpm-plugin-67dk2mez-FkS_mbt7f6k\" width=\"800px\" height=\"450px\" frameborder=\"0\" marginwidth=\"0px\" marginheight=\"0px\"><\/iframe><\/p>\n<p>You can view the <a href=\"https:\/\/oerfiles.s3.us-west-2.amazonaws.com\/Managerial+Accounting\/Transcripts\/UnderappliedorOverappliedManufacturingOverhead_transcript.txt\" target=\"_blank\" rel=\"noopener\">transcript for &#8220;Underapplied or Overapplied Manufacturing Overhead (how to dispose of it)&#8221; here (opens in new window)<\/a>.<\/p>\n<p>Now, let\u2019s check your understanding of adjusting Factory Overhead at the end of the month.<\/p>\n<div class=\"textbox tryit\">\n<h3>Practice Question<\/h3>\n<p><iframe loading=\"lazy\" id=\"ohm219042\" class=\"resizable\" src=\"https:\/\/ohm.lumenlearning.com\/multiembedq.php?id=219042&theme=oea&iframe_resize_id=ohm219042\" width=\"100%\" height=\"150\"><\/iframe><\/p>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-164\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Introduction to Month-end Reporting. <strong>Authored by<\/strong>: Joseph Cooke. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":364389,"menu_order":12,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Introduction to Month-end Reporting\",\"author\":\"Joseph Cooke\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"}]","CANDELA_OUTCOMES_GUID":"","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-164","chapter","type-chapter","status-publish","hentry"],"part":29,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/164","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/wp\/v2\/users\/364389"}],"version-history":[{"count":17,"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/164\/revisions"}],"predecessor-version":[{"id":2440,"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/164\/revisions\/2440"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/parts\/29"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/164\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/wp\/v2\/media?parent=164"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/chapter-type?post=164"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/wp\/v2\/contributor?post=164"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/wp\/v2\/license?post=164"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}