Question

Example 13: MEU Inc. uses a job order costing system. Information about production costs in February follows: Materials Direct Labor WIP 1/31 $30,000 $50,000 FG 1/31 15,000 25.000 Costs put into production 200.000 300,000 Cost of jobs completed 150.000 280,000 Cost of jobs sold 110,000 220,000 The firm applies overhead at 200 percent of direct labor cost. Actual overhead costs in February were $650,000 and it treats over and under applied overhead as an adjustment to cost of goods sold. A. Determine the account balances at 1/31 for wip and fg inventory. B. Using t accounts determine the account balances at February 28 for work in process and finished goods inventory. C. Determine the amount of underapplied or overapplied overhead for February. D. Determine cost of goods sold for February if overapplied and underapplied overhead is treated as an adjustment to cost of goods sold.

Answer 1

A. Balance at 1/31 for WIP = $30000+50000+50000x200% = $180000
Balance at 1/31 for FG = $15000+25000+25000x200% = $90000

B.

Work in Process Inventory
Beg Balance	$     1,80,000
Direct Material	$     2,00,000	$     9,90,000	Finished Goods Inventory
Direct Labor	$     3,00,000
Manufacturing Overhead applied	$     6,00,000
End Bal	$     2,90,000
Finished Inventory
Beg Balance	$        90,000
Work in Process Inventory	$     9,90,000	$     7,70,000	Cost of Goods Sold
End Bal	$     3,10,000

C. Overhead applied = $300000 x 200% = $600000
Actual Overhead = $650000
Under applied overhead = $650000 - $600000 = $50000

D.
Cost of Goods Sold for February = $770000+50000 = $820000