Marian Manufacturing (2M) applies manufacturing overhead to jobs based on direct labor costs. For Year 2, 2M estimates its manufacturing overhead to be $424,580 and its direct labor costs to be $816,500. 2M worked on three jobs for the year. Job 2M-1, which was sold during Year 2, had actual direct labor costs of $671,000. Job 2M-2, which was completed but not sold at the end of the year, had actual direct labor costs of $451,400. Job 2M-3, which is still in work-in-process inventory, had actual direct labor costs of $97,600. Actual manufacturing overhead for Year 2 was $669,200.

Required:
Prepare an entry to allocate over- or underapplied overhead to Work in Process, Finished Goods and Cost of Goods Sold.
Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field.

To allocate over- or underapplied manufacturing overhead to Work in Process (WIP), Finished Goods (FG), and Cost of Goods Sold (COGS), we first need to determine the applied overhead and compare it to the actual overhead to calculate the over- or underapplied amount. 

Here’s a step-by-step approach:

### 1. **Calculate the Predetermined Overhead Rate (POHR):**

\[
\text{POHR} = \frac{\text{Estimated Manufacturing Overhead}}{\text{Estimated Direct Labor Costs}} = \frac{424,580}{816,500} = 0.52 \text{ or } 52\%
\]

This means 2M applies overhead at 52% of direct labor costs.

### 2. **Calculate the Applied Overhead for Each Job:**

- **Job 2M-1 (COGS)**:
  \[
  \text{Applied Overhead} = 671,000 \times 0.52 = 349,920
  \]
  
- **Job 2M-2 (Finished Goods)**:
  \[
  \text{Applied Overhead} = 451,400 \times 0.52 = 234,728
  \]
  
- **Job 2M-3 (WIP)**:
  \[
  \text{Applied Overhead} = 97,600 \times 0.52 = 50,752
  \]

Total **applied overhead** is the sum of applied overhead across all jobs:
\[
349,920 + 234,728 + 50,752 = 635,400
\]

### 3. **Compare Applied Overhead to Actual Overhead:**

- **Actual Overhead** for Year 2: $669,200
- **Applied Overhead**: $635,400

\[
\text{Underapplied Overhead} = \text{Actual Overhead} - \text{Applied Overhead} = 669,200 - 635,400 = 33,800
\]

This means 2M underapplied $33,800 of overhead.

### 4. **Allocate the Underapplied Overhead:**

The underapplied overhead needs to be allocated to **Work in Process (WIP)**, **Finished Goods (FG)**, and **Cost of Goods Sold (COGS)** based on the proportion of applied overhead for each:

\[
\text{Total Applied Overhead} = 635,400
\]

- **COGS Allocation**:
  \[
  \frac{349,920}{635,400} \times 33,800 = 18,600
  \]

- **Finished Goods Allocation**:
  \[
  \frac{234,728}{635,400} \times 33,800 = 12,484
  \]

- **WIP Allocation**:
  \[
  \frac{50,752}{635,400} \times 33,800 = 2,716
  \]

### 5. **Prepare the Journal Entry:**

Now we can prepare the journal entry to allocate the underapplied overhead:

| **Account**                  | **Debit**   | **Credit**  |
|------------------------------|-------------|-------------|
| Cost of Goods Sold (COGS)     | $18,600     |             |
| Finished Goods Inventory (FG) | $12,484     |             |
| Work in Process (WIP)         | $2,716      |             |
| Manufacturing Overhead        |             | $33,800     |

This entry adjusts for the underapplied overhead by debiting the relevant inventory and cost accounts and crediting the manufacturing overhead account.

Would you like more details on any part of this explanation?

### Additional Questions:
1. How is underapplied overhead different from overapplied overhead?
2. Why do companies allocate overhead rather than directly tracking it for each job?
3. How does the predetermined overhead rate help in job costing?
4. What is the impact of underapplied overhead on financial statements?
5. How are variances like underapplied overhead corrected in subsequent periods?

### Tip:
Always compare actual overhead with applied overhead throughout the year to avoid large variances at the end of the year.

Marian Manufacturing (2M) applies manufacturing overhead to jobs based on direct labor costs. For Year 2, 2M estimates its manufacturing overhead to be $424,580 and its direct labor costs to be $816,500. 2M worked on three jobs for the year. Job 2M-1, which was sold during Year 2, had actual direct labor costs of $671,000. Job 2M-2, which was completed but not sold at the end of the year, had actual direct labor costs of $451,400. Job 2M-3, which is still in work-in-process inventory, had actual direct labor costs of $97,600. Actual manufacturing overhead for Year 2 was $669,200.

Required:
Prepare an entry to allocate over- or underapplied overhead to Work in Process, Finished Goods and Cost of Goods Sold.

Solve the overhead allocation problem for Marian Manufacturing (2M) using proportional allocation of $669,200 in actual overhead to Cost of Goods Sold, Finished Goods, and Work in Process. Learn how to calculate underapplied overhead and prepare the correct journal entry.

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