Question

2. Warden Inc. uses a job-order costing system in which any underapplied or overapplied overhead is closed out to cost of goods sold at the end of the month. The company's cost of goods manufactured for March was $152,000 and its beginning and ending inventories were: Inventories: Beginning Ending Work in process ..... $20,000 $14,000 Finished goods ....... $45,000 $29,000 During the month, the manufacturing overhead cost incurred was $59,000 and the manufacturing overhead cost applied was $63,000. Required: Determine the cost of goods sold that would appear on the income statement for March; in other words, determine the cost of goods sold after adjustment for any underapplied or overapplied overhead. Show your work! (20 points)

Answer 1

Determination of Over/(Under)applied overhead: Particulars Manufacturing overhead cost applied Manufacturing overhead cost incurred Overapplied overhead Amount $ 63,000 59,000 4,000 Amount $ 45,000 152,000 Indirect Method of Determining Cost of Goods Sold :- Particulars Beginning finished goods inventory Add: Cost of goods manufactured Goods available for sale Deduct: Ending finished goods inventory Unadjusted cost of goods sold Deduct: Overapplied overhead Cost of goods sold 197,000 29,000 168,000 4,000 164,000