Question

Record the journal entry to close over- or underapplied factory overhead to Cost of Goods Sold for each of the two companies below.

	Storm Concert Promotions	Valle Home Builders
Actual indirect materials costs	\(22,000	\)  12,500
Actual indirect labor costs	46,000	46,500
Other overhead costs	17,000	47,000
Overhead applied	88,200	105,200

Short answer

The entry is passed to close the overapplied overhead for Storm and underapplied overhead for Valle.

Step-by-step solution

Meaning of Overhead cost

Indirect material, indirect labor, and other operational expenditures are referred to as "overhead costs" because they are a part of the company's regular day-to-day operations but cannot be attributed entirely to any one item, service, or cost center.

Preparing journal entry to close overapplied overhead for Storm

Date	Particulars	Debit ($)	Credit ($)
	Factory overhead	3,200
	Cost of goods sold		3,200
	(To close overapplied overhead for Storm)

Preparing journal entry to close underapplied overhead for Valle

Date	Particulars	Debit ($)	Credit ($)
	Cost of goods sold	800
	Factory overhead		800
	(To close underapplied overhead for Valle)