Question

The following cost data relate to the manufacturing activities of Chang Company during the just completed year: Manufacturing overhead costs incurred: Indirect materials $ 16,000 Indirect labor 140,000 Property taxes, factory 9,000 Utilities, factory 80,000 Depreciation, factory 251,500 Insurance, factory 11,000 Total actual manufacturing overhead costs incurred $ 507,500 Other costs incurred: Purchases of raw materials (both direct and indirect) $ 410,000 Direct labor cost $ 70,000 Inventories: Raw materials, beginning $ 21,000 Raw materials, ending $ 31,000 Work in process, beginning $ 41,000 Work in process, ending $ 71,000 The company uses a predetermined overhead rate of $25 per machine-hour to apply overhead cost to jobs. A total of 20,700 machine-hours were used during the year.

Required: 1. Compute the amount of underapplied or overapplied overhead cost for the year. 2. Prepare a schedule of cost of goods manufactured for the year.

Answer 1

1.

Manufacturing overhead applied = Actual machine hours x Predetermined overhead rate

= 20,700 x 25

= $517,500

Actual manufacturing overhead costs = $507,500

Over applied overhead cost = Manufacturing overhead applied - Actual manufacturing overhead costs

= $517,500 - $507,500

= $10,000

2.

Schedule of cost of goods manufactured

Direct materials:
Beginning raw material inventory	21,000
Add: Purchases of raw material	410,000
Total raw materials available	431,000
Less Indirect materials	- 16,000
Less: Ending raw materials inventory	- 31,000
Direct materials used in production	384,000
Direct labor	70,000
Manufacturing overhead applied to work in process	517,500
Total manufacturing cost	971,500
Add: Beginning work in process inventory	41,000
	1,012,500
Less: Ending work in process inventory	- 71,000
Cost of goods manufactured	$941,500

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