Question

Ecola Company uses a job order costing system. Manufacturing overhead is applied on the basis of direct labor cost. Total manufacturing overhead was estimated to be $125,460 for the year; direct labor was estimated to total $153,000.

	(1/1)			(12/31)
Raw Materials Inventory	$	13,200		$	10,200
Work in Process Inventory	$	29,200		$	22,200
Finished Goods Inventory	$	41,200		$	32,200

The following transactions have occurred during the year.

Raw materials purchases	$	132,000
Direct materials used	$	71,400
Direct labor	$	137,000
Indirect materials used	$	16,200
Indirect labor	$	19,200
Factory equipment depreciation	$	28,200
Factory rent	$	15,200
Factory utilities	$	11,700
Other factory costs	$	8,700

(a) Calculate the predetermined overhead rate

	Predetermined Overhead Rate    %

(b) Calculate cost of goods manufactured.

	Cost of Goods Manufactured

c) Calculate the over- or underapplied overhead. (Input the amount as positive value.)

(d) Calculate adjusted cost of goods sold

	Adjusted Cost of Goods Sold

Answer 1

(a)	Predetermined overhead rate=Estimated manufacturing overhead/Estimated direct labor cost=125460/153000=$ 0.82 per direct labor cost
(b)	Cost of goods manufactured:
						$
	Direct materials used					71400
	Direct labor					137000
	Manufacturing overhead applied				(Note:1)	112340
	Total manufacturing cost					320740
	Add: Work In process inventory on 01/01.					29200
	Total manufacturing cost to account for					349940
	Less: Work In process inventory on 12/31.					22200
	Cost of goods manufactured					327740
	Note:1
	Manufacturing overhead applied=Direct labor cost*Predetermined overhead rate=137000*0.82=$ 112340
c)	Manufacturing overhead applied=$ 112340
	Actual manufacturing overhead:
					$
	Indirect materials used				16200
	Indirect labor				19200
	Factory equipment depreciation				28200
	Factory rent				15200
	Factory utilities				11700
	Other factory costs				8700
	Total				99200
	Manufacturing overhead applied > Actual manufacturing overhead
	Hence,Overhead is said to be over-applied
	Over-applied overhead=112340-99200=$ 13140
d)	Adjusted cost of goods sold:
						$
	Cost of goods manufactured					327740
	Add: Finished goods inventory on 01/01.					41200
						368940
	Less: Finished goods inventory on 12/31.					32200
	Unadjusted cost of goods sold					336740
	Less: Over-applied overhead					13140
	Adjusted cost of goods sold					323600