Question

21. Everspring, Inc. has the following data for 2018. its first year of operations (this means all accounts had $0 beginning balances). Any over/under-applied overhead is closed out proportionately to the applicable accounts. Actual overhead $15,000 Cost of goods manufactured (unadjusted) $30,000 Cost of goods sold (unadjusted) $15,000 Predetermined overhead rate $50 per direct labor hour Direct labor hours used 200 Direct labor rate $100 per hour Raw materials purchased $55,000 Raw materials used ($30,000 direct, $10,000 indirect) $40,000 What amount would be shown as "Inventory" on the Balance Sheet at the end of the year?

Answer 1

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Ever Spring Inc.	Amount $
Calculation of Overhead under applied		Note
Labor hours used	200.00	A
Predetermined OH rate	50.00	B
Overhead applied	10,000.00	C=A*B
Actual Overhead	15,000.00	D
Overhead under applied	5,000.00	E=D-C
Calculation of finished goods inventory
Cost of goods manufactured	30,000.00
Less: Cost of goods sold	15,000.00
Finished goods inventory	15,000.00	F
Calculation of direct labor costs
Labor hours used	200.00	See A
Labor hour rate	100.00	G
Direct labor costs	20,000.00	H=A*G
Calculation of total manufacturing costs
Direct materials used	30,000.00
Direct labor costs	20,000.00
Overhead applied	10,000.00
Total manufacturing costs	60,000.00	I
Calculation of WIP inventory
Total manufacturing costs	60,000.00	See I
Less: Cost of goods manufactured	30,000.00
WIP inventory	30,000.00	J

If under applied overhead is closed in the ratio of WIP, finished goods and cost of good sold.
	WIP	Finished goods	Cost of good sold	Total
Amount	30,000.00	15,000.00	15,000.00	60,000.00	K. See workings above.
% of allocation	50.00%	25.00%	25.00%	100.00%	L
Under applied overhead	2,500.00	1,250.00	1,250.00	5,000.00	M=K*L. This is $ 5,000* % of allocation.
Adjusted Value	32,500.00	16,250.00	16,250.00		N=K+M

Calculation of raw materials inventory	Amount $	Note
Raw materials purchased	55,000.00
Less: Raw materials used	40,000.00
Raw materials inventory	15,000.00	O
Amount to be shown as inventory in Balance Sheet	Amount $
Raw materials	15,000.00	See O
WIP	32,500.00	See N
Finished goods	16,250.00	See N
Inventory	63,750.00