Question

Southwestern Fashions, Inc. which uses a job-order costing system, had two jobs in process at the start of the year: job no. 101 ($84,000) and job no. 102 ($53,300). The following information is available:

a.	The company applies manufacturing overhead on the basis of machine hours (based on practical capacity). Budgeted overhead and machine activity for the year were anticipated to be $824,000, and 16,000 hours, respectively.
b.	The company worked on four jobs during the first quarter. Direct materials used, direct labor incurred, and machine hours consumed were as follows:

Job No.	Direct Material	Direct Labor	Machine Hours
101	$21,000	$35,000	1,200
102	—	22,000	700
103	44,000	65,000	2,000
104	15,000	8,800	500

c.	Manufacturing overhead during the first quarter included charges for depreciation ($33,000), indirect labor ($60,000), indirect materials used ($5,200), and other factory costs ($139,600).
d.	Southwestern Fashions completed job no. 101 and job no. 102. Job no. 102 was sold on account, producing a profit of $34,800 for the firm.

4.	Did the finished-goods inventory increase or decrease during the first quarter? By how much?

5.	Was manufacturing overhead under- or overapplied for the first quarter of the year? By how much?

Answer 1

Manufacturing overhead rate = 824,000/16,000 = $51.5 per machine hour

Job No.	Balance at Beg. of year (A)	Direct Material (B)	Direct Labor (C )	Manufacturing Overheads Machine Hours X $51.5 (D)	Cost of Finished Goods (A+B+C+D) = E	Cost of Goods Sold (F)	Closing Finished Inventory (E-F) = G
101	84,000	21,000	35,000	61,800	201,800	-	201,800
102	53,300	-	22,000	36,050	111,350	111,350	-
103	-	44,000	65,000	103,000	Not Completed	Not Completed	Not Completed
104	-	15,000	8,800	25,750	Not Completed	Not Completed	Not Completed
Total	137,300	80,000	130,800	226,600	313,150	111,350	201,800

4. Finished inventory has Increased during first quarter by $64,500 , ie 210,800 (G) - 137,300 (A)

5. Budgeted overheads applied in first quarter = $226,600 (D)

Actual overheads for the quarter = 33,000 + 60,000 + 5,200 + 139,600 = $237,800

Actual overheads rare higher than budgeted overheads by $11,200 resulting in under application.