Question

Please answer 4-30. Below is 4-28 question and answer for background to 4-30:

XLS 4-28 Job order costing (CMA adapted) (LO 5) ErgoFurn, Inc. manufactures ergonomically designed computer furniture. ErgoFurn uses a job order costing system. On November 30, the Work in Process Inventory consisted of the following jobs: Job No. Item Units Accumulated Cost CC723 Computer caddy 20,000 $ 900,000 CH291 Chair 15,000 431,000 PS812 Printer stand 25,000 250,000 $1,581,000 On November 30, ErgoFurn's Raw Materials Inventory account totaled $668,000, and its Finished Goods Inventory totaled $3,456,400. ErgoFurn applies manufacturing overhead on the basis of machine hours. The company's manufacturing overhead budget for the year totaled $4,500,000, and the company planned to use 900,000 machine hours during the year. Through the first eleven months of the year, the company used a total of 830,000 machine hours, total manufacturing overhead amounted to $4,274,500, and Cost of Goods Sold was $8,750,250. ErgoFurn purchased $638,000 in raw materials in December and incurred the following costs for jobs in process that month: Job No. CC723 CH291 PS812 DS444 Materials Issued $155,000 $ 13,800 $211,000 $252,000 Machine Hours 12,000 4,400 19,500 14,000 Direct Labor Hours 11,600 3,600 14,300 12,500 Direct Labor Cost $122,400 $ 43,200 $200,500 $138,000

Answer 1

Answer is given below

a) Under-absorbed Overhead $270,000 Actual Overhead incurred Overhead absorbed Under-absorbed Overhead 11 months December $4,274,500 $395,000 $4,150,000 $249,500 $124,500 $145,500 Full year $4,669,500 $4,399,500 $270,000 11 months overhead absorbed - 830,000*$5 b) The machine hours used for Overhead absorption rate at beginning of the year is 900,000 Total machine hours used during the year is 879,900 Hence there is under absorbed overhead due to lower than expected machine hours used during the year Credit Debit $270,000 c) Journal entry General Journal Cost of Goods sold To Manufacturing Overhead (To record disposal of under-absorbed factory overheads) $270,000 Credit d) Journal entry General Journal To Work in process To Finished Goods To Cost of goods sold To Manufacturing Overhead (To record disposal of over-absorbed factory overheads) Debit 13,506 69,644 186,850 $270,000 Closing inventories Ratio Work in process Finished goods Cost of goods sold*( 11 months + December) Closing Value $759,000 $3,913,750 $10,500,300 $15,173,050 5.0% 25.8% 69.2% 100.0% Adjusted Allocation Balance $13,506 $772,506 $69,644 $3,983,394 $186,850 $10,687,150 $270,000 $15,443,050 COGS for full year - (1,750,050+8,750,250) e) ErgoFurn can allocate the overheads to Inventories of Work in process, Finished goods and Cost of goods sold Since there is significant Finished goods inventory charging all under-absorbed overheads to Cost of goods sold will not be appropriate Hence allocation to WIP, FG inventory and cost of goods sold will be more appropriate to ErgoFurn