Question

Phillis Ltd. uses a job order costing system that applies manufacturing overhead to work in process using a predetermined annual overhead rate. During April 20x6, the company’s transactions included the following:

	Direct labour costs	$153336
	Direct materials issued to production	64194
	Indirect materials issued to production	12713
	Actual manufacturing overhead	144138
	Applied manufacturing overhead	181786

The company’s beginning and ending work in process inventory balances for April 20x6 were $19418 and $31228, respectively. What was the cost of goods manufactured for April 20x6?

Select one:

a. $349858

b. $400219

c. $362571

d. $387506

Answer 1

Cost of goods manufactured= Direct Material Used + Direct Labour Used + Manufacturing Overhead Assigned + Opening WIP - Closing WIP

     = 64194 + 153336 + 181786 + 19418 - 31228

= $ 387,506

Therefore the student must choose option d. $387,506

Note: Indirect materials are either included in manufacturing overheads, and are allocated to the cost of goods sold and ending inventory at the end of each accounting period based on some reasonable method of allocation OR they are charged as an expense to the income statement. Inclusion into the manufacturing overhead is considered more theoretically accurate however if the amount of indirect materials is small, it is acceptable to instead charge it as an expense. Here, the answer arrived at is based on the assumption that indirect materials is an expense. However, if the student chooses to include it in the manufacturing overhead, the answer will be option b. $400,219