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The following information relates to Wells Fargo for July 2008: Actual direct labour costs R80 000 Actual direct labour rate per hour R8 Factory overhead rate per direct labour hour R12 Factory overhead incurred R160 000 Assuming underapplied or overapplied overhead is transferred to cost of goods sold at the end of the period, which of the following would be the entry to the cost of goods sold account? A
The following information relates to Wells Fargo for July 2008:
Actual direct labour costs
R80 000
Actual direct labour rate per hour
R8
Factory overhead rate per direct labour hour
R12
Factory overhead incurred
R160 000
Assuming underapplied or overapplied overhead is transferred to cost of goods sold at the end of the period, which of the following would be the entry to the cost of goods sold account?
A.R80 000 debit
B.R80 000 credit
C.R40 000 credit
D.R40 000 debit
Expert Solution
Hence, the correct option is D). R 40 000 debit
Working note:-
Labor hours worked = Actual direct labor cost / Actual direct labor rate per hour
= 80000 / 8
= 10000 hours
Applied overhead = Factory overhead rate * Labor hours worked
= 12 * 10000
= 120,000
Underapplied overhead = Actual overhead - Applied overhead
= 160,000 - 120,000
= 40,000
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