A company has just finished its first year of operations and must decide which method to use for adjusting cost of goods sold. 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 balance in the relevant accounts were:

Work-in-Process $40,000
Finished Goods $80,000
Costs of Goods Sold $680,000

Required:

a. Prepare a journal entry to write off the differece between allocated and actual overhead directly to Cost of Goods Sold. Be sure your journal entry closes the related ovehead accounts.

b. Prepare a journal entry that prorates the write-off to the difference between allocated and actual overhead using ending account balances. Be sure your journal entry closes the related overhead accounts.