Question

Garcia, Inc. uses a job-order costing system for its products, which pass from the Machining Department, to the Assembly Department, to finished-goods inventory. The Machining Department is heavily automated; in contrast, the Assembly Department performs a number of manual-assembly activities. The company applies manufacturing overhead using machine hours in the Machining Department and direct-labor cost in the Assembly Department. The following information relates to the year just ended:

	Machining Department			Assembly Department
Budgeted manufacturing overhead	$	4,000,000		$	3,080,000
Actual manufacturing overhead		4,280,000			3,050,000
Budgeted direct-labor cost (based on practical capacity)		1,500,000			5,600,000
Actual direct-labor cost		1,450,000			5,780,000
Budgeted machine hours (based on practical capacity)		400,000			100,000
Actual machine hours		425,000			110,000

The data that follow pertain to job no. 775, the only job in production at year-end.

	Machining Department			Assembly Department
Direct material	$	23,500		$	6,600
Direct labor	$	27,800		$	58,600
Machine hours		360			150

Selling and administrative expense amounted to $2,500,000.

1. Compute the cost of the company’s year-end work-in-process inventory.

2. Determine whether overhead was under- or overapplied during the year in the Machining Department.

3. Determine whether overhead was under- or overapplied during the year in the Assembly Department.

4. How much overhead would have been charged to the company’s Work-in-Process account during the year?

Answer 1

1
		Machining	Assembly
a	Budgeted Manufacturing Overhead	4,000,000	3,080,000
b	Budgeted Machine Hours	400,000
c	Budgeted Direct labor cost		5,600,000
d	Overhead Rate of Machining =(a/b) Assembly= (a/c)	10	0.55
2
		Machining	Assembly	Total
a	Direct Material	23,500	6,600	30,100
b	Direct Labor	27,800	58600	86,400
c	Overhead cost for Machining	3600		3,600
d	Overhead cost for Assembly		32,230.00	32,230
e	Total cost of work in Process	54,900	97,430.00	152,330
	Total cost of work in Process	152,330
	Working note
	overhead cost of Machining = (Machine hour * Overhead rate)
	Machining= 360*10= 3600
	Overhead cost of Assembly = (direct labor cost * overhead rate)
	Overhead cost of Assembly = 58600*0.55=32230
3 & 4
		Machining	Assembly
a	applied overhead cost Machining = Overhead rate * actual Machine hours = 10*425,000 Assembly = overhead rate * actual direct labor cost = 0.55*5780000	4,250,000.00	3,179,000.00
b	actual overhead cost	4,280,000.00	3,050,000.00
c	Over or under applied overhead (a-b)	(30,000.00)	129,000.00
3	Matching department under -applied because Budgeted Manufacturing overhead cost is lower than actual overhead cost
4	Assembly Department over- applied Budgeted Manufacturing overhead cost is higher than actual overhead cost
5	Overhead Charged to Work in process during the year
		Machining	Assembly	Total
	applied Manufacturing Overhead	4,250,000.00	3,179,000.00	7,429,000.00
	Overhead Charged to Work in process during the year =7,429,000 (sum of Both department)