Question

Garrison, Inc., which uses a job-costing system, began business on January 1, 20x3 and applies manufacturing overhead on the basis of direct-labor cost. The following information relates to 20x3:

• Budgeted direct labor and manufacturing overhead were anticipated to be $280,000 and $420,000, respectively.

• Job nos. 1, 2, and 3 were begun during the year and had the following charges for direct material and direct labor:

Job No.	Direct Materials				Direct Labor
1	$	153,000			$	43,000
2		328,000				73,000
3		63,000				88,000

• Job nos. 1 and 2 were completed and sold on account to customers at a profit of 70% of cost. Job no. 3 remained in production.

• Actual manufacturing overhead by year-end totaled $310,000. Garrison adjusts all under- and overapplied overhead to cost of goods sold.

Required:

A. Compute the company's predetermined overhead application rate.

Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D Required E Compute the company's predetermined overhead application rate. Predetermined overhead application rate

B. Compute Garrison’s ending work-in-process inventory.

C. Determine Garrison’s sales revenue.

D. Was manufacturing overhead under- or overapplied during 20x3? By how much?

E. Present the necessary journal entry to handle under- or overapplied manufacturing overhead at year-end.

Answer 1

1) Overhead rate = estimated overhead/estimated labor cost = 420000/280000 = 150% of labor cost

2) Ending WIP ( Job 3) = direct material+Direct labor+Overhead = 63000+88000+(88000*1.5) = 283000

3) Cost of goods sold (Job 1 and Job 2) = 481000+116000+(116000*1.5) = 771000

Sales revenue = 771000*1.7 = 1310700

4) Applied overhead = (43000+73000+88000)*1.5 = 306000

Actual overhead = 310000

Under applied overhead = 4000

5) Adjusting entry

Date	account and explanation	Debit	Credit
	Cost of goods sold	4000
	Manufacturing overhead		4000
	(To record under applied overhead)