Question

The following cost data relate to the manufacturing activities of Chang Company during the just completed year Manufacturing overhead costs incurred: 10 points Indirect materials Indirect labor Property taxes, factory Utilities, factory Depreciation, factory Insurance, factory Total actual manufacturing overhead costs incurred s 16,400 144,000 9,400 84,000 210,900 11,400 $476, 100 eBook Hint Other costs ineurred Print Purchases of rav materials (both direct and indirect) Direct 1abor cost 414,000 s 74,000 Inventories Rav materials, beginning Rav materials, ending Work in process, beginning Work in process, ending 21,400 s 31,400 41.400 71,400 The company uses a predetermined overhead rate of $23 per machine-hour to apply overhead cost to jobs. A total of 21,100 machine-hours were used during the year Required 1. Compute the amount of underapplied or overapplied overhead cost for the year. 2. Prepare a schedule of cost of goods manufactured for the year

Answer 1

1. Calculation of overapplied or underapplied overhead costs for the year

Total number of Machine Hours worked = 21,100

Overhead absorption rate per machine hour = $23

Therefore, Applied (or, Absorbed) Overheads = Absorption rate * Number of machine hours

i.e., $23 * 21,100 = $485,300

Whereas, Total Actual manufacturing overheads incurred = $476,100

Therefore, the overheads actually incurred are less than the overheads applied on the basis of machine hours. Hence, the overapplied overheads are ($485,300 - $476,100, i.e.,) $9,200.

2. Statement showing Cost of Goods Manufactured for the year

Particulars	Amount ($)
Cost of direct materials purchased (414,000-16,400)	397,600
Add: Opening Raw materials	21,400
Less: Closing Raw materials	31,400
= Cost of direct materials used	387,600
Add: Cost of Direct Labor	74,000
= Prime Cost	461,600
Add: Opening work in progess	41,400
Less: Closing work in progress	71,400
= Prime Cost of goods manufactured during the year	431,600
Add: Total Manufacturing Overheads actually incurred during the year	476,100
= Total cost of goods manufactured during the year	907,700