A journal entry that includes manufacturing overhead and cost of goods sold is recorded to:

• A. Allocate direct labor costs to Work in Process
• B. Transfer applied overhead from Manufacturing Overhead to Cost of Goods Sold
• C. Record the purchase of raw materials
• D. Recognize sales revenue from finished goods

Answer: (B)

Verified step by step guidance

1. Understand the purpose of the journal entry: The problem is asking about the correct journal entry related to manufacturing overhead and cost of goods sold. This typically involves transferring applied overhead costs to the appropriate account.
2. Review the concept of applied overhead: Manufacturing overhead includes indirect costs such as factory utilities, depreciation, and indirect labor. Applied overhead is allocated to products based on a predetermined rate, often tied to direct labor hours or machine hours.
3. Identify the correct accounts involved: The journal entry will involve debiting Cost of Goods Sold (COGS) to reflect the applied overhead costs and crediting Manufacturing Overhead to reduce the balance in that account.
4. Understand the flow of costs: Manufacturing overhead is initially recorded in the Manufacturing Overhead account. When products are sold, the applied overhead is transferred to Cost of Goods Sold to match expenses with revenues.
5. Write the journal entry: Debit Cost of Goods Sold to increase the expense account and credit Manufacturing Overhead to decrease the overhead account. This reflects the transfer of applied overhead costs to COGS.