Question

IYF Corporation manufactures miscellaneous parts for building construction and maintenance. IYF uses a normal job costing system. The system applies manufacturing overhead on the basis of direct labor cost. For managerial purposes, over- or underapplied overhead is written off to Cost of Goods Sold monthly. IYF hires interns to work in its Plant Accounting department and, as a part of its interview process, asks candidates to take a short quiz.

You are given the following journal entries for June. (Assume that entries are made only once each month.)

Account Titles	Debit	Credit
Work-in-Process Inventory (Direct Labor)	12,000
Wages Payable		12,000
Direct Material Inventory	14,800
Accounts Payable		14,800
Finished Goods Inventory	35,200
Work-in-Process Inventory		35,200
Cost of Goods Solda	44,000
Finished Goods Inventory		44,000

^aThis entry does not include any over- or underapplied overhead. Over- or underapplied overhead is written off to Cost of Goods Sold once for the month. For June, the amount written off was 6 percent of overhead applied for June.

The Work-in-Process ending account balance on June 30 was twice the beginning balance. The Direct Material Ending Inventory balance on June 30 was $6,940 less than the beginning balance. The Finished Goods ending balance on June 30 was $3,080.

The June income statement shows Cost of Goods Sold of $44,576.

Required:

a. What was the Finished Goods beginning inventory on June 1?

b. How much manufacturing overhead was applied for June?

c. Overhead is applied on the basis of direct labor costs. What was the manufacturing overhead rate for June?

d. How much manufacturing overhead was incurred for June?

e. What was the Work-in-Process beginning inventory balance?

f. What was the Work-in-Process ending inventory balance?

Answer 1

				Calculation	Answer
		a.	Finished goods inventory at beginning on June 1	(44,000+3080-35,200)	$11,880
		b.	Manufacturing overhead applied	COGG in income statement = 44,576 COGS from Finished goods A/c = 44,000 Hence, excess COGS = 576 due to underapplied OH. Underapplied overhead = 6% of total overhead Total overhead = 576/6% = $ 9600	$9,600
		c.	rate of manufacturing overhead	Direct labor cost = 12,000 overhead applied = 9,600 rate of application = 9,600/12,000 = $ 0.8	$0.80
		d.	manufacturing overhead incurred	Manufacturing overhead applied = 9600 Under applied overheads = 576 Hence, manufacturing overhead incurred = 10176	$10,176
		e.	Work in process beginning balance	Refer note 1	$8,140
		f.	Work in process ending balance	Refer note 1	$16,280
	Note -1
			Beginning WIP = X Ending WIP = 2X
			WIP - T aacount
			Beg. Bal.             X	Finished goods transfer     35,200
			Wages             12,000	Ending balance                    2X
			Overhead         9600
			X+12,000 +9600 = 2X +35200
			hence, X = 8140
			Hence, 2X = 16280

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