Question

Morrison Company began the year with the following balances in its inventory accounts: • Raw Materials $ 15,000 • Work-in-process $ 45,000 • Finished Goods $ 85,000 Morrison applies Overhead to production using direct labor hours. As of the beginning of the year, Morrison estimated the year's total manufacturing overhead to be $140,000 and total direct labor hours to be 5,000. The following transactions occurred during the year Purchased $94,000 of raw materials on account. 2. Used $87,000 of raw materials. The materials used were classified as: Direct materials $69,000 • Indirect materials $18,000 3. Incurred and paid wages and salaries of $190,000, classified as: • Direct labor $130,000 (5,200 hours at $25 per hour) • indirect labor $ 15,000 • Selling and administration $ 45,000 Incurred various costs totaling $83,000, related to: • Production (i.e. manufacturing overhead) $60,000 Selling and Administration $23,000 Recorded total depreciation of $60,000, related to: Manufacturing equipment $43,000 Equipment used for selling and administration $17,000 Work in process totaling $290,000 was transferred to Finished Goods during the year. Finished goods costing $300,000 were sold during the year. REQUIRED (to receive credit, answer must be supported by clearly presented, easy to understand, computations) 1. (1 point) Compute the predetermined overhead rate Morrison will use to apply MOH to production 2. (1 point) Compute the amount of overhead applied to production during the year. 3. (3 points) Finished (3 points) Compute the ending balances in Raw Materials, Work-in-process, and Goods Compute Cost of Goods Manufactured for the year. Compute the amount of over- or under-applied overhead for the year to label it as over or under applied). (2 points) (be sure (2 points) Assume any over-or-under-applied overhead is closed to cost of Goods Sold prior to preparing financial statements and Sales for the year are $400,000. Compute Net Income (ignore income taxes).

Answer 1

Solution:

1. Predetermined OH rate = Estimated Mfg. OH / estimated direct labor hours

= $140,000 / 5,000

= $28 Per DLH

2. Overhead applied to production = DLH × predetermined OH rate

   = 5,200× $28 = $145,600

3. Ending balance in Raw mat. = Beg. bal + Purchased - Used

= $15,000 + 94,000 - 87,000 = $22,000

Ending balance in Work-in process = Beg. bal. + Direct RM used + Direct labor used + Overhead applied - WIP transferred to FG

   = $45,000 + 69,000 + 130,000 + 145,600 - 290,000

   = $99,600

   Ending balance in Finished Goods = Beg. bal + WIP transferred in - Finished goods sold

   = $85,000 + 290,000 - 300,000

   = $75,000

4. Cost of Goods manufactured can be computed as follows:

Schedule of cost of goods manufactured Direct materials consumed 69,000 Direct labor cost 130,000 Prime cost $ 199,000 Total manufacturing OH applied 145,600 Add:Work in process, beginning 45,000 Less:Work in process, ending (99,600) Cost of goods manufactured $ 290,000

5. Amount of over-applied OH = Applied OH - actual OH incurred

= $145,600 - 136,000 = $9,600 (over-applied)

6. Net Income = Sales - Adjusted COGS - Total selling & administration cost

= $400,000 - ($300,000 - 9,600) - ($45,000+23,000+17,000)

= $ 24,600

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